How to Figure Bonds Payable

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You can figure bonds payable using a very specific method. Figure bonds payable with help from a real estate and mortgage professional in this free video clip.

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Video Transcript

Hello, this is Sidney Potter of Potter Equities, Pasadena, California. Thank you for your time. I've been asked to comment specifically on how to figure bonds payable. Now, at first blush you may wonder what are bonds payable in connection with real estate. I operate Potter Equities which is a real estate advisory firm and mortgage backed security, a due diligence evaluation. Well there's actually a lot of connection between bonds figure payable and I'll tell you why very quickly. Bonds, if we look at housing are typically long term payouts. They usually come in the form of GSEs. GSCEs are government sponsored entities. The government sponsored entities in this case, in terms of long term bonds, would be the Fannie Mae, the Freddie Mac or even the Gennie Mae. And what we do when we look at that type of secured financing long term bond is we sometimes want to know how you use present value to determine the payable amount. Well, there's several factors that we look at in terms of figuring out the bonds payable in connection with GSEs and their secured ties collateral, that being Freddie Mac, Fanny Mae and Gennie Mae in connection with long bonds. These are the factors, factors that cause payable and what the amount is. The first item looks principally at the fluctuation of market. That could be as determined by outside events. Either they're real or perceived. They could be political events or they could be a commodity crisis. That's certainly going to have a fluctuation of the market. It could be something as arcane as a president waking up on the wrong side of the bed. We all watch Bloomberg or sometimes financial news and we realize there's a thread, certain thread that causes market fluctuation, some of them for real, some of them perceived. Secondly in terms of issues that figure out the bonds payable amount, we would look at, let's say for example, a bond twenty year term's got a nine percent interest rate, that bond may even become less value if present day there's ten percent bonds coming out. It certainly seems logical. We've got one bundle right here, nine percent bonds, twenty year term, then you've got new bonds coming out ten percent. The attractiveness of a nine percent is going to be diluted in value, and it's going to have a determinative affect in terms of the bonds payable. Now, third item here and likewise. If we've got a bond that's nine percent, twenty year amortization, suddenly bonds are coming out at eight percent at a twenty year amortization, some of that nine percent looks pretty attractive. And certainly that's going to figure in and play in to the fluctuation of the market and what amount that bond is going to pay out at. And lastly we look at the health of a company. If the company let's say for example, GE or Ford, dating back two years ago, shows dictorious effects in terms of the market condition and is deteriorating, the health of that company is going to affect the attractiveness of the bond and it may in like kind decline. Almost similar to the athlete analogy. If you've got an athlete that's in great condition, more likely he or she is going to be at optimal performance. If we've got a company that has deteriorating effects, they're going to be at sub-par performance. S, if you can keep in mind, and just to recap right here, four principle elements that relate to the payable aspect of what a bond pays out at, in figuring out the bonds payable amount. That will lead you to the road in terms of whether or not it's a good or bad investment. So, this is Sidney Potter of Potter Equities in Pasadena, California. I thank you for your time and I'll see you at the finish line.


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