# Question on high-yield mobile home notes - Posted by Debra G.-VA

Posted by Sean on May 26, 2000 at 08:44:35:

Actually this is a great example of the time value of money. Let’s look at it another way – let’s say we are set on having a 116% yield and the person approaches us with the second note (the one having 60 payments instead of 36). How much more are you willing to pay?

The answer is \$50.51 more. Those extra 24 payments of \$150 are worth only \$50.51 because they are so far in the future. Money today is truly worth more than money in the future.

To calculate on my calculator:
36 [n]
1500 [PV]
-150 [PMT]
0 [FV]
[CMPT] [i%] (9.64% monthly, 116% annually)
60 [n]
[CMPT] [PV] (1550.51)

That’s only \$50.51 more than the \$1500 we’d originally pay. I think it’s great that you’re getting such good yields. Keep up the good work!

Question on high-yield mobile home notes - Posted by Debra G.-VA

Posted by Debra G.-VA on May 26, 2000 at 07:37:33:

I’m just starting investing in used mobile homes (buying and reselling), and have learned the very basics in using my financial calculator. Both of my first notes have yields over 100% (which is great!). But I’m a bit confused on the yield calculations when I estimate yield for longer terms.

Example: \$1,500 investment, \$150 monthly payments, 0% interest, 36 payments totalling \$5,400. Yield: 116% Great!

Now, if I lengthen the term of the note to 60 payments (and consequently increase the loan amount to \$9,000) this increases yield to only 120%. Even though my loan has increased 65%, and I’m receiving \$3,600 more within just 5 years.

Does the time value of money really make that much difference with such short-term notes? Or is it just because the yields are so high to begin with?

Thanks!

Re: Question on high-yield mobile home notes - Posted by David Alexander

Posted by David Alexander on May 26, 2000 at 11:04:53:

That’s why you find out there down payment and how much a month they can afford before you quote a price.

You get the max payment they can afford and say something like … If you could have this paid off in 6 years would that work for you. Let me see, based on your ability to afford this payment amount, the price of the Mh works out to be … Would that work for you?

David Alexander

P.S. Three years seems max - Posted by Debra G.-VA

Posted by Debra G.-VA on May 26, 2000 at 09:54:25:

Yield appears to go up pretty well until you reach about a 3 year term. Beyond that, the yield doesn’t seem to increase much at all, at least at these high yield levels.