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The Weekly What IF? June 24, 2018
Easy
Solving for Number of years on a loan
Andy wants to buy a rental house that the owner is selling for $200,000. The seller has greed to accept 3 Diamond rings for the down payment and agrees to finance the remaining $180,000 at 6%. Andy knows that the house will rent and stay rented for $1850 per month, therefore Andy can only pay $925 per month in mortgage payments.
Why can Andy only pay $925 per month when the house rents for $1850?
How many years long is this note?
If the seller agreed to lower the interest rate to 5%, how many years would the note run?
How about 4%?
Medium
Polly runs into Andy at the coffee mixer at IEREIC, she informs him that she can't afford to save for retirement. With his withering drill down of questions, Andy determines that Polly spends $10 a day at Starbucks. Andy suggests she cut this spending by half and that she saves the $5 a day she saves. Polly is 24 and figures she'll be investing until she's 74. Just based on this $150 a month ($5 day X 30 days) alone, what will she have when she stops investing at 74 if she earns 3% in her mutual fund investing?
What if she lends her savings to a mobile home flipper at 9%?
What if she learns about tax lien certificates and earns 15%?
If she only kept up her $5 a day savings for 10 years? Then added nothing more but just re-invested her earnings?
Hard
Investor has a flip deal and he needs $132,000 to fund the deal. Lender has $122,000 that he will lend for 6 mos he wants 8% plus 2 points. The wrap lender has $10,000 in his Roth he wants to put the deal together and maximize his profits. Mr investor borrows the $132,000 he needs from Wrap Lender for 12% plus 3 points, Wrap lender records an all inclusive trust deed for the 12% plus 3 points loan. Loan calls for 50 year amortization monthly payments. Assume a 6 month term for the project.
- What is the total amount of the AITD note?
- What are the monthly payments to the Wrap Lender?
- What are the payments to the underlying lender?
- What is the net monthly cash flow to the Wrap lender?
- What is the balance paid off at the 6 month end of term to the Wrap lender?
- What is the balance paid off at the end of the term to the underlying Lender?
- What is the net balloon paid to the Wrap Lender?
- What was the final annualized yield on the Roth's investment of $10,000?
UPCOMING EDUCATION:
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Paper Essentials, Peter Fortunato & Michael Morrongiello, July 21, near San Francisco airport Using Real Estate secured "paper" as a Tool to Alternatively and Creatively Finance Acquisitions and Dispositions of Real Estate. Pete's one of the inspirations for MMNG
Gary Johnston's Financial Freedom Principles, Sept 1-2, Santa Ana THIS IS A MUST TAKE CLASS FOR EVERYONE!
Peter Fortunato & John Schaub's Opportunities & Pitfalls in Today's Market MY OF TWO FAVORITE TEACHERS! THEY ARE THE BEST!
Orange Coast Exchanger Meets July 6th at Marie Calendar's in San Juan Capistrano at 9am $35 includes book and Marie Calendar's lunch! email [email protected] for details
Answers for June 17, 2018 Weekly What If? (I hope the answers line up properly)
George pays $138 per month for a mini warehouse his company plans to occupy for the foreseeable future. He has the opportunity to pay one year ahead. If the manager accepts 10 months or $1380 for one years rent, what does George's investment earn?
N I PV PMT FV
12 35.07 -1380 138 0
What if the manager want 11 months or $1518 for one years rent?
N I PV PMT FV
12 16.38 -1518 138 0
What if he gets one free month for paying one year in advance or $1656 pays for 13 months?
N I PV PMT FV
13 13.96 -1656 138 0
Medium
John has a little owner carry back second loan from selling his rental house to Peter. It calls for 300 more payments of $282.71 and has a balance of $40,000 at 7% and is fully amortized. John just found a great deal on another investment and sells Andy his note for a yield of 12% How much will Andy pay for this note?
N I PV PMT FV
300 12 ? 282.71 0
-$26,842.34
Hard
Andy wants to improve the yield on his investment so he calls Peter and offers to cut his interest rate in half to only 3.5% if peter will agree to double his payments to $565.42. Andy explains that Peter will be paid off in 80 months instead of 300 months. What is Andy's yield on this new note?
N I PV PMT FV
79.35 3.5 40,000 -565.42 0
79.35 ? -26,842.34 565.42 0
17%
Peter likes this so much he thanks Andy and offers to name his next son Andy. So Andy says “if you like that, how about I lower your interest rate to 2% and you double your payments again to $1130.84.” Andy explains that Peter will be paid off in only 37 months! What is Andy's yield on this 2% note?
N I PV PMT FV
36.49 2 40,000 -1130.84 0
36.49 ? -26,842.34 1130.84 0
30.05%