ROI on a New Note

[Lauren Sinz]

I have an opportunity to buy and sell a mobile home. I can offer seller financing but am trying to calculate the ROI. I would be taking title to the mobile home and immediately turning it around with seller financing at the same price I buy it for. The cost will be $40,000. The note will be written for $36,000 ($4,000 down payment) at 12% for 5 years. Based on an amortization schedule, that will yield $12,048.01 interest over the 5 years. When I take that "profit" and divide it by the $36,000 "investment" and divide that by 5 "term", I come up with a 6.69% number. If my interest payment was 12% why am getting 6.69% for the ROI? Is that really my ROI on this note? I'd really appreciate input and direction if my calculation is incorrect.

[Howard Abell]

You are confusing an amortized loan at 12% with an investment at 12%. Think of it this way: Your 36,000 of loan was partially paid back over the 5 year period so the principal was not a full 36,000 over the time period. If you had an investment at 12% that paid you each year 4320 times 5 years or 21,600, that would be an roi of 12%. 21,600 divided by 36,000 equals 60% divided by 5 years.