Yield Comparison based on CC Money - Posted by MichaelR (NoVA)

Posted by MichaelR (NoVA) on December 18, 1998 at 19:00:08:


I would certainly agree with the 18% assessment, but I’ve got around $40k at 4.9% for 6 months. I am sure that I can beat this, and pay off whatever I borrow, pretty easily with low-risk MH deals.

Even if I get burned, I can empty out other investments to pay back the $$$ before interest becomes an issue.

But, what I need is a calculation to determine exactly what my return is going to be. Still looking for help in that department.


Yield Comparison based on CC Money - Posted by MichaelR (NoVA)

Posted by MichaelR (NoVA) on December 17, 1998 at 15:23:31:

Holiday Greetings To All -

I’m hoping that someone can help me out with a calculator/yield question, or at least point me in the right direction.

What I want to do is have a way to compare the yield I would get from a Lonnie (or any Paper) deal with the payments I would have to make on a credit card for borrowing the money.

Now, I know I need the minimum principal payment as well as the Interest rate, but I have no freaking idea how to combine these into a calculation on a calculator or a spreadsheet.

I have a TI-BAII Plus, and a few others. I don’t mind getting a new calculator or finding the formula somewhere…but I’m spinning my wheels at the moment.

Thank you in advance.


Re: Yield Comparison based on CC Money - Posted by John Behle

Posted by John Behle on December 19, 1998 at 11:38:51:

From a calculator standpoint, determining your yield is best done through calculating the IRR or Internal Rate of Return. It’s going to be a challenging and complicated process on the TI BAII. It’s great for simple cash flows, but gets left in the dust when they become complex. Go with the HP17B, 19B or 12C.

What you would do is take your cash flow from the note on a monthly basis. Payments in minus payments out - leaving the net positive (or negative) cash flow. For a simple example:

Payment in $500 for 60 months.
Payment out $300 for 36 months.

The cash flow would be $200 per month for the first 36 months, then $500 per month for the remaining 24. You have two cash flows. The first is a “Series” of payments and is an easy calculation on any calculator. The second is a “Future Series” - which is a series of payments that begins at a future date. It’s a more complicated calculation that is best done through the “uneven cash flow” functions built into the calculator. You can do it on the TI through two method. One is the “Double discount”. Discount the series of payments as if it started today. Then take that discounted amount and discount it again to account for the time period (in this case 36 months) before it starts. Another method is the “Subtraction” method. I calculate the cash flow as if it began today and carried throught the full term (60 months). Then I calculate the value of what I didn’t receive (36 months) and subtract that - leaving me the value of the cash flow I have (24 payments of $500 begining in 36 months).

In the question of what is your yield? If you have borrowed 100% of the money on credit cards, then your yield is infinite. If you have any investment, then it is the amount that goes into the calculator as the “Initial Flow”. You then enter the cash flows and calculate for the internal rate of return. It’s a one week course in the CI101 course for the Realtor’s National Marketing Institute, so I won’t attempt it here. When your yields are high, the IRR is also very inaccurate based on assumptions that are made by the calculator.

As far as your particular example, I would have to know the payments coming in on the Lonnie deal and the payments, rate and terms of the credit card loans. If your investment yield is high enough and secure, credit cards can be a viable option. It just depends on the terms.

If you want to throw us some exact or hypothetical figures, I’ll run it through the calculator.

Re: Yield Comparison based on CC Money - Posted by Bud Branstetter

Posted by Bud Branstetter on December 17, 1998 at 20:50:19:

The typical credit card has a monthly repayment of principal and interst of 3% of the amount owned. Some lower interest cards do 5%. At 3% AND 18% interest it would take almost four years to pay off that card. Be 1 day late and there could be a $25 late charge.

Bottom line- not the best idea. Cash from credit cash is only adviseable when you know you can pay it back in a month or two. Look into a signature credit line at a local credit union.