Need Help Determining A Note Investing Yield

Note Investing YieldsRecently a private note investor contacted us to get some guidance on calculating a yield on a note they were buying. While payments were current there was a past due balloon they were looking to extend along with an additional advance.

This is a creative workout solution to a common balloon problem and the investor kindly agreed to let us share it here with our readers.

The Question on Calculating Yield:

I mainly broker hard money loans and buy existing notes, but this one deal has me confused and I need you to please help figure out the keystrokes on my HP12C.

A seller sold a property holding a purchase money mortgage for $110,000.00 in 2006. It was amortized for 15 years at 10.75% with a 5-year balloon. Neither the mortgagor nor the mortgagee paid attention to the balloon and the mortgage continued.

The mortgagee offered to sell the note at a discount. The mortgage is current and the September 2013 payment has been made. In order to make me feel comfortable with the collateral, I insisted that the mortgagor add another parcel they owned as additional collateral. They agreed but only if I advanced an additional $5,000.00. There are closing costs included so ultimately the payer will be signing a new note for $83,000.00.

The note rate will remain the same but we are now amortizing the $83,000.00 over 200 months with a balloon due September 1, 2018 with the new payment starting October 1, 2013. I do not know how to figure out my yield. The additional advance is throwing me off.

Below are the basic facts:

  • Original Loan- $110,000.00
  • Rate- 10.75%
  • Amortized – 15 years with a five-year balloon
  • Payment – $1,233.04
  • Balloon Date – February 1, 2011
  • Current principal balance aft 91 payments – $75,407.57
  • Next payment due – October 1, 2013

The note is being modified to the following terms:

  • New Note Amount- $83,000.00
  • Rate – 10.75%
  • Amortized- 200 months with a 5-year balloon
  • New payment $893.70
  • Balloon Due – September 1, 2018

Although the current principal balance is $75,407.57 ($83,000 after modification) my client is only investing $67,000.00 for the mortgage. My problem is that I do not know how to figure out what my client’s yield is. Although you may be able to help me figure out the yield, more importantly I would like to know the individual keystrokes involved so I can calculate on future deals.

Thanks again for agreeing to assist with this calculation.

Private Note Investor

Making The Calculations

When I was at the insurance company buying notes there was an HP12C “wizard” that taught me the financial calculator. He said to always reduce it down to the money you will receive (the cash flow) then calculate for yield.

So on this deal I put the following in the HP12C Financial Calculator:

  • 83,000 CHS PV
  • 10.75 G I
  • 893.70 PMT
  • 60 N
  • Solve for FV = 71,138.80

Now that the cash flow is established we can replace PV with the investment amount of $67,000:

  • 67,000 CHS PV
  • Solve for I = 1.40
  • x by 12 to get an annual yield = 16.8%

I come up with 16.8% yield assuming the balloon is made. I always run a worse case scenario assuming the balloon is not paid and that the note needs extended at the same monthly payment and rate. In that case the yield would be 14.58%. That calculation looks as follows:

  • 67,000 CHS PV
  • 200 N
  • 893.70 PMT
  • Solve for I = 1.21
  • X by 12 to get an annual yield = 14.58%

There are more complicated ways to run this based on the old note, the advance, expenses, etc. but this is an easy straightforward way to look at the deal. I assumed the $67,000 investment included the note investment amount, advance, and any expenses. It’s important to mention the calculations would change if it was really 67,000 PLUS the 5,000 advance and expenses being invested. If someone wants to see it on paper I find that the T-Value software program is a great tool that matches the HP12C to the penny.

How To Calculate Cash FlowsYou can also get step-by-step video tutorials in our new How To Calculate Cash Flows Online Training!

The Disclaimer: I must add that I can’t provide tax, legal, or investment advice and encourage you to seek the assistance of competent counsel should you need those services. I’m just sharing my personal experience of how I would look at the deal if I were buying it for my own purposes.

About Tracy Z

Tracy combines her knowledge of cash flow notes with the power of marketing online to help grow your business! She can be reached at 1-888-999-7905 or at Exposure One Marketing.


  1. Hi, Tracey. Could you please share with me the actual formula for calculating yield? I want to see how all of the variables influence yield, plus create an excel formula to calculate from within my ROI calculator. Thank you.

    Joe T.

  2. Anthony Henderson says

    Dear Sir/Madam,

    I am writing to get some information that will assist me in effectively marketing and growing my business as an active Note Investor (Contract Buyer)/Note Broker with my firm, Charter Financial/Charter Notes. Since I have started working primarily as a Note Broker for Charter Notes, in May, 2012, I have not been able to start effectively marketing my business services in the Note Business, and start getting note deals that I can send to my Broker Support Office, at Charter Financial/Charter Notes, for quotes and pricing by my firm’s note investors, and then my further processing my clients’ note deals, to start earning some acceptable income in sales commissions. Since I have begun working as a broker, I have been trying to get the funds to start a website that will be hosted by my firm’s hosting services, and posted where I can start earning daily and monthly commissions, from the traffic of customers who will be visitng my website. I just need some assistance in finding the best websites that will have note sellers who are looking for note buyers (individual and note investment firms.

    Please send me a listing of recommended note seller websites and any other sources that I can use to provide me with large inventories of performing and non-performing mortgage notes and business notes for sale.

    Thank vou for your consideration, and I look forward to hearing from you very soon.

    Sincerely yours,

    Anthony Henderson
    Note Investor (Contract Buyer)/Note Broker
    Charter Financial/Charter Notes

  3. I love math! When you mix it with dollar signs? I love it even more!!

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