Difference between Yield and Return on Investment for a Note

[Ray Trounday]

I am getting myself confused between Yield and ROI. For illustration purposes, lets say that we are evaluating the following note:

Original Principal Balance: $100,000

Interest Rate: 5%

Term: 360

Payment (-536.82) Calculated

Lets say that the the above note is available in the secondary market parameters as follows with10 payments made:

Unpaid Balance:  98,976

Remaining Payments: 350

As a savvy investor, I am looking to buy the balance of the payments at a discount 70% of the Unpaid balance: or $69,500

that would improve my Yield from 5.0% to 8.55% based on inputting the parameters into by HP10ii

My question is how would I arrive at ROI? And is ROI only realized once I receive a payment? So, on initial purchase my ROI is 0

[Linda Hastings]

If the note is performing and you plan on keeping it for cash flow, then yield is the better metric to use since it takes time into account and shows your annual return. ROI comes into play more in the case of a non-performing note that you foreclose on and then sell the property, or if you get the note re-performing and then sell the note.

One way I've seen ROI used in the "performing note held for cashflow" situation is to take the monthly payment multiplied by 12 and then divide by your purchase price. In your example, (536.82*12)/69500 = 9.27%. I'm not really sure what value this provides though.