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Short-term lending for big returns
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THE SCENARIO
I live in a condo complex, and this year the Board approved a fairly large Special Assessment to replenish the reserves after the building suffered a variety of expensive emergencies in the past year. Many of the people in my complex, however, are retirees on fixed incomes, and coming up with a bunch of money in a hurry is sometimes hard for people in that situation.
However, since I'm not yet retired, and my income is somewhat higher than the average Social Security recipient's, it might be possible to help out a neighbor or two, and give them a short-term loan. One way to do this is to lend the needed up-front money, and then take 10% of that amount each month for the next year.
If I lend $2,500 today and receive $250 per month for the next year, what's my return on investment?
THE SOLUTION
First things first, make sure the calculator is using 12 Payments per Year.
N: 12 (I collect payments for a year)
I/YR: (This is what I'm trying to find)
PV: -2,500 (I'm lending $2,500 to cover the Special Assessment)
PMT: 250 (I get paid $250 per month)
FV: 0 (No more is owed after the year has elapsed)
If I make this loan, I make 35.07% on my money.
What do you think? Do you think offering this kind of loan to my neighbors might be of benefit to them? Do you see anything wrong with this scenario? Do you ever run across people that could use a short-term loan of this sort, that might find it helpful to borrow from you? Let us know in the comments!
