The Numbers...

[Ron King]

Here is an example from an article I was reading. I tried plugging the numbers in my calculator and didn't come up with the numbers in the article. Hopefully you can tell me how he got to them. First the article:

"Ricardo and Maria Ceuvas had sold their home several years ago and taken back a note on the property. The original terms were as follows:

N I PV PMT FV

180 9% $56,200 $570 $0

Five years had past by and now the note looked like this:

N I PV PMT FV

120 9% $45,000 $570 $0

Mr. Ceuvas had an opportunity to open up an auto repair place with his brother-in-law and needed the cash to do so. We always like to make at least two offers and preferably three, but we knew in this case, he wanted as much money as he could get. Since this was a first, we knew this note would qualify for an institutional lender. The home had originally sold for $70,250, so we knew the ITV would be way below the 75% that most institutional lenders require on an owner occupied house. So we decided on an 18% offer, knowing we could sell it at 13%. We did make two offers and as usual we made the partial offer at a higher per cent (21%) as follows:

Full purchase:

N I PV PMT FV

120 18% $31,636 $570 $0

Partial purchase:

N I PV PMT FV

60 21% $21,069 $570 $0

As we already suspected, Mr. Ceuvas took the first offer. We did the usual appraisal, credit report, and going through the original title company, we did a 104.1 endorsement (ask your title officer how you can save money with this endorsement) and completed the transaction.

Now the fun began. First of all, we knew that we would get more money by buying the note and then turning around and selling it than by just brokering to an institutional investor. We knew that if we rescheduled the note, we could get even more money for the note. The following is what we would get by just selling as it was structured:

N I PV PMT FV

120 13% $38,178 $570 $0

End article--------------------------------------------------------------------------

Ok so the article said "So we decided on an 18% offer". my question 18% of what?

How is he coming up with the PV in all these examples?

Then he said "we did a 104.1 endorsement". my question: what is 104.1 endorsement?

Pretty much I just don't get the numbers. Its seems like these numbers are just being pulled out of the air in all articles, books, and examples I read like this one. I know I need to master the technique of the numbers, but right now I am struggling with the financial calculations and calculator. I use a HP 10BII calculator. The frustrating part is I'm usually good with the numbers. Thank you for your help!