Help Figuring out Interest Rate payments vs Sale of Asset (Excel?)

[bitteeinbit]

Hi guys,

I'm trying to figure out how to calculate the "reverse ROI"(not even sure what to call it) of a loan.

Here's the lowdown:
I have a 70k loan at 11% interest (yikes!). It's actually a mortgage on some land my fiance and I bought when we didn't have much liquidity (we live in Asia, so interest rates are basically credit card rates). We have some assets we want to offload to hep pay it off faster and the bank allows for it.

Our monthly payments are $1100 on a 70k loan of 96 months (8 years). Equal payments every month, so currently our principal payments are around 450 and interest 650 or so. The penalty for an early payment is 2% of what we pay off. So say we paid off 30k as an early lump sum payment, we'd pay a $600 penalty (which is basically our current interest payments).

Now, as for our assets:
One asset is a piece of land worth around 38k, the other is another tiny studio worth around the same. So here's my question, which I find difficult to formulate as I'm not sure what it's called. How to I calculate the sale price vs interest payments? For example, is it worth holding on selling the land for a higher price of 38k for xx months, or better to sell it 31k today? I know it's better to pay a lump sum ASAP given the high interest rate, but I'd like to see it on a spreadsheet of some sort. I'm usually pretty good with Excel and all that, but I can't wrap my head around how to calculate this. I basically want to know how low we should go with the sale of the assets. Are we better off selling the land for 33k in four months, or better to hold on and sell at 37k for seven months (and so on)? The market is a bit weird here as there's a bit of a slowdown and market prices are all over the place. I'm willing to sell fairly cheap as we bought the land for like $6500 around a year and a half ago (and could confidently sell it tomorrow for 25k), but my fiance wants to hold on for a higher price (we were told 34-38k is a decent market price, but it has generated just a bit of interest in the two months it's been on the market). We don't want to come off as desperate, but I don't want to be paying 20k in interest by not offloading the land fast enough.

Any advice or help with the reverse ROI (or whatever it's called) would be appreciated. Trying to figure out how long it's worth holding on to a higher price vs all the interest we'd be paying the in meantime. Hopefully my explanation is enough for you guys to understand what I'm talking aout...

[The_Rural_Juror]

Not to worry, old chap. I have seen this exact wall of text while cleaning the Haskayne finance department one night. I will have the solution to you in a jiffy. How long have you had this loan?

[dirtsniffer]

Sell it

[bitteeinbit]

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Not to worry, old chap. I have seen this exact wall of text while cleaning the Haskayne finance department one night. I will have the solution to you in a jiffy. How long have you had this loan?

We made the first mortgage payment on November 15th, so we've made 3 payments so far.

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Sell it

For sure, but I'd like to have some sort of visualization of when one option outweighs the other (I basically want a bit of ammo to convince the fiance we need to sell before X date )

[jwslam]

I didn't actually watch this video but you are looking for NPV and IRR functions

https://www.youtube.com/watch?v=qAhV3xG0i8s

[bitteeinbit]

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I didn't actually watch this video but you are looking for NPV and IRR functions

https://www.youtube.com/watch?v=qAhV3xG0i8s

Hey, thanks for the response. I don't think that's actually what I need. From what I can understand, NPV/IRR are to compare two different investments and their potential returns. In my case, it's actually the benefits or drawbacks of paying off a mortgage early, versus the potential sale price of assets in order to achieve this (unless I put negative cashflow amounts corresponding to interest payments? But then what would the interest rate be? The difference between sale prices?).

[Buster]

Why not just compare carrying cost to rate of asset appreciation.

But I'm drunk

[ExtraSlow]

it seems like you are under the assumption that your assets will be going up in value over time. I think you start by throwing that out.

[bitteeinbit]

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it seems like you are under the assumption that your assets will be going up in value over time. I think you start by throwing that out.

I don't think I was making myself clear. I'm not trying to figure out future asset growth in value. I'm trying to figure out if it's worth having a "firesale". Basically, am I better off waiting and selling at a "fair" market value (but that takes a bit of time), or saying "Fvck it", and selling quickly at far below market value.
For example:
Keep advertising the land at market value (~36k) and eventually sell in 4-5 months at that price, or advertise it for say, 25k and quickly find a buyer/sell in 3-4 weeks? That's the basic calculation I want to figure out. Where the two would intersect, or "how low can I go" type of deal. I know I should pay off ASAP as I'm paying $650 in interest per month, but I'd like to see it visualized.

[sabad66]

Put together a chart for the mortgage showing month, equity, principle payment, interest payment. Copy the sheet into multiple sheets for each scenario (firesale at x price, sell 5 months later at y price, etc) then replace your payments with lump sum amounts based on what you think you could get. Then you can see what your new payments would be and how much interest liability you have left for each scenario.

[blitz]

You're paying about half of the interest towards this part of the loan, so $325/month. If your increase in sales price is more than $325/month for your sales period, it's worth it.

e.g. if it takes you 5 months to sell, you've paid $1625 in carrying costs. Anything above that is "profit".

You could make it more complicated, but there's no point.

[rx7boi]

All I did was play with a mortgage early payment calculator to determine what the interest savings were, but that's more simple than what's being called for here.

I'm no good with this kind of #marth

[Illusive 4-2]

Here's a simple spreadsheet I just built to illustrate your question; bunch of assumptions made (i.e. proceeds go towards principal, keep monthly payment, interest calculated based on prior month principal remaining, etc.), assuming you sell today for $31,000, if you wait for a higher number such as $38,000 in this case, you'd have to sell by August 2020.

[killramos]

^ haha nice work!

[bitteeinbit]

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Here's a simple spreadsheet I just built to illustrate your question; bunch of assumptions made (i.e. proceeds go towards principal, keep monthly payment, interest calculated based on prior month principal remaining, etc.), assuming you sell today for $31,000, if you wait for a higher number such as $38,000 in this case, you'd have to sell by August 2020.

Wow! You're a hero! That's amazing, even has the fees. Exactly what I was after. Do you mind sending me that via email or something so I can play around with sale prices and so on? I'm assuming it's a mortgage calculator, but the "asset sale" column goes directly to principal? PMed you. Many thanks again, gives me a good idea of how to do it.

[JfuckinC]

Fuck I need to figure this out on my wife’s condo, it’s rented and she pays on top every month, and it’s def not worth what it was when she bought so I wanna know if we should sell or keep dumping money into it haha.. will have to review that thing tomorrow, and see if it works for my situation. illusive you’re a champ.

[Illusive 4-2]

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Wow! You're a hero! That's amazing, even has the fees. Exactly what I was after. Do you mind sending me that via email or something so I can play around with sale prices and so on? I'm assuming it's a mortgage calculator, but the "asset sale" column goes directly to principal? PMed you. Many thanks again, gives me a good idea of how to do it.

That's correct; base assumption is that the asset sale funds go straight to the principal. If you wanted to keep some cash, just net that off of the proceeds and enter the amount you want to put back into the principal. Got your PM and have sent you an email with the spreadsheet, good luck!