How to arrive at CapRate for Performing Notes

[Ray Trounday]

I would like to arrive at CapRate for performing note investments.  Is it simply the annualized interest income of the borrower payment divided by the market value?  Please advise.

Thanks,

Ray

[Mike Hartzog]

If the loan calls for regular monthly payments, the RATE() formula works well to produce an annualized yield.

=RATE(nper, pmt, pv) * 12

nper = Number of payments remaining

pmt = payment amount (you can also reduce this by your monthly servicing cost to get a more accurate yield)

pv = amount you paid for the loan, i.e., your cost basis