I was reading the book Deals on Wheels and see the Yield being quoted but can not figure out how he is coming up with his number.
My calculation of yield does not come close to his, based on his numbers. Can someone explain please.
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What are the numbers you are trying to calculate your annual percentage yield on (e.g. $5k basis, $10k note, 10% down for 5 years)?
And are you doing it by hand? Or with a financial calculator?
Let’s try his basic deal
30 month loan
12.75 interest
$175.96
2,000 loan
He comes up with 94.96 yield
I use a spread sheet, not the financial calculator
That is a $5,278.80 return on $2,000 invested
You don’t have enough information to complete your calculation properly. You need to know your basis, or total investment in the mobile home or asset ($???), as WELL as what the loan amount ($2000).
If you paid $500 for the mobile home, or $1000, that will ultimately change your annual percentage yield drastically. You will basically be creating a note for either 4x your basis, or 2x your basis, plus interest.
So how much do you want to say you paid for the home? $500? $1000?
Tell me, then I can help you from there.
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I ran Lonnie’s numbers as well. I couldn’t come up with his results either. I used both a financial calculator and spreadsheets. I also ran the numbers on what he advocates on how to get to a $60K/yr income. Those numbers didn’t really work either, for several reasons: 1. He didn’t consider some expenses 2. A large chunk of earnings would have to be continuously reinvested even past the date you’d reach $60K/yr 3. In the final year paid outs drop off so the rate of buying more MH’s has to increase pulling more reinvestment money.
Reinvesting a large chunk would be the only way to keep the revenue up into the upper 5 digits. Your income would cut away the reinvestment causing the revenue to gradually decrease.
Every 30 months MH’s would be paid out and you’d need to replace that plus continue to add to your inventory in order to generate a true $60K/yr income. This would take some where in the neighborhood of 10+ years and hundreds of MH’s in your inventory. At that point there would be more expense with a computer system and programs to help keep track of payments and expenses. That’s not to mention possibly having to pay back lot rent when the borrowers take off.
The book I read of Lonnie’s was not his current book. May be his newer book privides the missing data.
I don’t know what to think. I’ve ran Lonnie’s numbers through several proforma’s, financial spreadsheets and profitablity ratio spreadsheets and it doesn’t look that good.
If someone can show me different I’m open to listen. I really wanted his numbers to be work so I could deliver myslf from the slavery I’m in as an employee.
Just One Mans Opinion.
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I will give you a couple examples based on your info below. Your formula is incomplete because you do not have your basis, or total investment, in the asset your are selling for $2000. If you want to reference the page number in the book, I will look at it, and that may clear things up a bit.
A $2000, 30 month loan, at 12.75% interest has monthly payments of $78.205 per month or $78.21 per month. The total payments equal $2346.30.
If you had a $1000 basis in that asset you carried a note on, your yield jumps to 6.704% per month or 80.448% annually.
If you had a $500 basis in that asset you carried a note on, your yield jumps to 15.429% per month or 185.148% annually.
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This is his first deal on page 34. The investment was $2,000.
This is the latest printing of his book. It has a copyright of 2006 but the numbers quoted clearly indicate all the information is older than 2006
The whole objective of his book is to teach someone how to earn enough income to quit their job, and become financially independent. How far you take your business is up to you. If you want to stay at $60k a year, thats fine. If you want go to $250k or beyond, that will work too.
Lonnie does stress, at some point, it’s smarter to invest in bigger and better things…like mobile home lots, mobile home parks or something else. Mobile homes are “short term assets”, while a mobile home park or single family rental home - is a “long term asset”. See http://www.reiclub.com/articles/prescription-burned-out-landlords - that is a good article explaining it, by Lonnie.
Note if you are a Rich Dad Poor Dad / Kiyosaki fan - he teaches the same basic philosophy, but with less detail. They ultimately say earn as much earned income as you can, and funnel the profits into passive and portfolio income. In time, you will become rich.
I built a business system based a lot on Lonnie’s teachings, that involves “short term” income producing assets, but actually has nothing to do with mobile homes, yet involves assets that I pay cash for and get very similar (80-125% APY) yields on, and it has made me quite successful.
You can take his fundamentals that he teaches in his three books - especially in Taking The Mystery Out of Money - my favorite - and expand them to any business.
To answer your questions/comments specifically, Van Dyke:
Q) He didn’t consider some expenses
A) All businesses have expenses. If you are making 85%+ interest and keep your expenses low, you still are doing far better than 98% of the people out there.
Q) A large chunk of earnings would have to be continuously reinvested even past the date you’d reach $60K/yr
A) This is true. You need to wait for your compound interest to make you rich. In my first 2 years of starting a Lonnie style business, I didn’t take a drop of income out for myself, while I kept my job. Thanks to compound interest when I quit my job after 3-4 years, I made a six-figure salary and had tons of money in the bank to buy more assets with. Debt-free assets that are making you high-levels of compound interest, are a guaranteed to way to get rich, as long as you keep working at the business system and expanding it. I compare it to a giant boulder rolling down a mountain … almost unstoppable.
Q) In the final year paid outs drop off so the rate of buying more MH’s has to increase pulling more reinvestment money.
A) In the mobile home note business you have an extremely high amount of turnover, and so you will find a large percentage of your notes will be defaulted on. This is a good thing, actually. As you can take back the home, and resell it. That is one of the keys to the business. In his book, he talks about how he resold one home … like 7 times if I recall.
Also the ability to find & create new notes is important - so you will have to work again some.
Q) The book I read of Lonnie’s was not his current book. May be his newer book privides the missing data.
A) All of his books are good, but you will get a better understanding of them all if you read them all for sure. Taking The Mystery Out Of Money is by far … his best book in my opinion.
Q) If someone can show me different I’m open to listen. I really wanted his numbers to be work so I could deliver myslf from the slavery I’m in as an employee.
A) His numbers DO work. And many people have become vastly wealthy thanks to Lonnie. And not all of them have done so with mobile homes. Trust me, if I can do it, you can do it. Looking back now … I see how dangerous it was to be an employee. At anytime, your company can fire you and you can be out on the street. It sucks losing your one and only source of income! Now I have THOUSANDS of sources of income from my assets, and I am financially free. I am continuing to make more & more money, and my family & I are living better every year. You can do it too!
Ok. I am looking now…
The book says he bought it for $2000 (see the Amount Invested & Yield Table under PV), and sold it for $4,500 (see the How We Structure The Note Table under PV).
So, if you take 30 monthly payments, 12.75% annual interest (which comes to 1.0625% monthly interest) and a $4500 value of the note (which is also called PV, or present value) … you get a monthly payment of $175.9629296 … or $175.96 to keep it simple. Using those same figures, if you reduce your PV to $2000, which is your basis, your interest jumps to 7.89889462% per month. 7.89889462% x 12 months = 94.78673544% per year.
So he is getting 94.78% if you round down, or 94.79% per year if you round up, in interest. He is rounding down for some reason. LOL.
The key thing is … by buying an asset for $2000 cash and selling it for $4500 plus interest … he is getting interest rates that most unsophisticated investors would think is a joke. But it’s real. Very real.
Cool, eh?
Note that it is far easier to calculate APY, annual percentage yield - which is also called interest factoring in compounding - on a financial calculator. If you pick yourself up an HP-12C and a copy of Lonnie’s Taking The Mystery Out Of Money book, he teaches you how to use it in there
And don’t let the math & investment terms overwhelm you. If you buy that book, he explains everything in very plain language terms, yet it’s sophisticated enough not to turn off someone who is quite educated. Anyone can learn to use a financial calculator thanks to Lonnie!!! LOL
I am not a disbeliever, I have a dozen mobile home notes currenly running myself. I just was unable to get the numbers to come out as Lonnie says. I have not used an HP 12c for years. They are not necessary any more with computers and spreadsheets. You can make statistics say anything.
Well, they’re necessary if your spreadsheet is producing wrong mathematical calculations! =D
You can definitely use a computer if that’s your preference, but I have found in the field or at a business meeting and away from a computer it definitely comes in handy. Plus it’s so quick & easy, I have come to love my HP-12c Platinum. Here’s a link to some HP12c software if you would want to try that: http://download.cnet.com/hp-12c-Financial-Calculator/3000-2066_4-10253473.html
Good luck with your investing.
I am a bit of an Excel junkie so I let the spreadsheets do all the calculating… Here is what I use:
To Calc APY (the ridiculous % motivatedceo mentioned):
= (( F / S ) ^ ( 1 / n )) - 1
= ((Total $ of All Payments / Your $ in the Deal) ^ (1 / Term of Note in Years or Fraction Of)) - 1
I use (Number of Monthly Payments / 12) for ’ n '.
To Calc my Return on Investment I use a simple formula:
= (Total $ of All Payments - Your $ in the Deal) / Your $ in the Deal
Hope that helps ya…
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This is really very simple…I’ve know Lonnie for years and his numbers are accurate! My experience, having done hundreds of these has me explain a deal like this:
Buy a cheap home for $3k, sell it for $600 down and $200/month for 5 years. If you spend $3k and get back a down payment of $600, that leaves $2400 in the deal. $200/month is an annual cash flow of $2400 on a $2400 investment…that equals 100% yield including return of principal.
Say what you want…I’ve done hundreds of these and it works just fine. I’ve training dozens of new investors to do this and it works fine. Is it a problem free business? No…anytime you have owner financing involved you will have some inherent problems in collecting, but on a volume of business, you can and will get wealthy.
I own a couple of mobile home parks and have room for any investor to bring a home in and get this type of yield. I like collecting rent on the dirt! I will just keep filling up my lots and keep getting high yields, until the parks are filled.
Hope this helps.
Rob
When it comes to business everybody seems to have the background of accounting.Calculation in business is very important because it’s all about money and maybe some would say that success happens here.In relation to the monetary workings, few concepts are as significant to understand as compound interest. It pops up all over the place in customer finance, that trick of adding interest to principal. Knowing about compound interest can help keep you from the red.