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Does Anyone know the yield formula Lonnie Scruggs uses to get 94% yield in his book Deals On Wheels? Page. 34
Suppose we find two homes that we can buy for
$2,500 each, and they don’t have to be moved. Let’s also
suppose we don’t have to make any repairs or pay anything
other than a little advertising, which for simplicity sake we
won’t include in our figures. These homes are 12-14 feet wide,
60-70 feet long, and 10-20 years old. Our total cost in each
one is $2,500. Now, let’s sell these two homes and structure
two different notes from two different buyers.
We sell each home for $5,000 with a $500 down
payment. Our buyers sign a $4,500 note, payable 12.75%
interest, $175.96 per month for 30 months. Let’s see how we
come out on these two little cheapo deals.How We Structure The Note:
N 30 I 12.75 PMT 175.96 PV4,500Amount Invested And Yield:
N 30 I $94.78 PMT$175.96 PV$2,000After receiving $500 down, we have $2,000 left in
each home. Our total monthly payments on the two notes
amount to $351.92 And we also have $1,000 cash from the
down payments. As you can see from our chart, this works out
to be a 94% yield.Rob,
He plugged this into a financial calculator. This is what is called the time value of money. The factors that may come into play is number of payments (usually this is monthly payments), the interest rate, the present value, the payment amount (a negative number) and the future value (also a negative number). You can always calculate for one unknown. If you want a little crash course let me know I can tutor you.Rob,
Knowing how to use a financial calculator is (still) one of the secrets in this business.
I know several mortgage brokers who don’t know anymore than how to calculate a payment.
And that’s using their company software. Most can’t/won’t learn how to use the calculator.Its an investment of your time that pays VERY well.
Mike
Rob,
Here’s a book I HIGHLY recommend. ‘Invest in Debt’ by Jimmy Napier is a great primer on the time value of money. Even though its a few years old, the concepts never get old. Get a copy.
Links:
Amazon — https://www.amazon.com/Invest-Debt-Book-Buying-Paper/dp/9998258359
Jimmy Napier — http://garyjohnston.com/registration-and-products/jimmy-napier/Happy Thanksgiving,
Mike Weiss
On the HP10bii app:
Plug in what you know:
30 N
2000 PV
175.98 +/- PMTSolve for what you don’t know:
I/YR
which results:
94.78% Yield
The $2,000 PV comes from the purchase price $2500 less the down payment $500 the buyer provides
The $175.98 PMT amount comes from the note with the buyer.
You basically get that income stream for the net cash outlay of $2,000.You probably already figured this all out if you watched Lonnie, but just in case, here it is.
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