It was a typical phone call, "I understand you contracts notes purchase?" I replied, "absolutely!" "What can you tell me about the terms of the note?" The answer I got was I was well prepared and you should be too. Well, the touch is for 10 years with a balance of $25,000, payments are $403.34 per month. I have questions about what is the interest rate because I know how to calculate... it... 15%. Learn how you can calculate the missing information placing a leg up on everyone else when it comes to buying notes. I created an easy to use Excel spreadsheet here, you can use to calculate missing values of a note.
By using the Excel spreadsheet, or not, remember the four components that are the key to determine which is the note. These four components are your starting point for determining how much you can pay for the note.
Number of payments (N):. Find out how many payments in the note that can expect to receive based on other variables. Expressed in the year, must multiply by 12.
Interest rate (I):. Is the effective interest rate on the note. One thing to remember when calculating interest, 12 divide by getting the interest rate. (For each month of the year)
Payment (PMT):. Identifies the current monthly payment you can expect, principle and interest over the life of the note to receive.
Present value (PV):. The present value of the note on the basis of a series of future payments.
Once you know that these four components can you start analysis, to determine, how much you can afford to pay if the note buying. You can also determine what will be your rate of return. Next week, using this framework, we determine how we can pay much for the note, on the basis of the four components and our own expected returns.
Photo credit: Horia Varlan
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Kevin Kaczmarek is President of KSC capital, LLC. Serving a national and international client base, Kevin helps customers, your personal goals for long-term stability and strong financial growth through even directed to reach IRA investment and individualized passive income strategies.
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