Ellwood in 60 Seconds Start the Clock You remember the band of investment: M x RM = whoseiwhatsit 1-M x YE = whatchamacallit       RO Here is the horizontal version: RO = YE - M(YE - RM) Instructions: 1.Get the difference between the two numbers. 2.Give it some weight. 3.Subtract it from the other number. 4.Picture it on a number line. Stop the Clock Here's where things go haywire. Ellwood said that all we have to do is modify the yield rate to account for loan amortization as a source of return. It is easier to understand if you think in terms of modifying the cap rate; that is, by adding a modification to the right hand side of the equation, the left side (RO) is being modified. Restart the Clock A portion of our property (M (Loan-to-Value Ratio)) will provide some additional benefit by accumulating some principle payments (P (Percent Paid Off)) which we will annualize (1/SN (Sinking Fund Factor)): RO = YE - M(YE - RM) - M x P x 1/SN (…beginning to look a lot like Ackerson...) Factor out M and do some transposing: RO = YE - M(YE + P1/SN - RM) Maybe bank some compounding appreciation: RO = YE - M(YE + P1/SN - RM) - App x 1/SN There you go. Next installment, "The J Factor: Implications for Extended Life Span" available in the Spring of 2025. One final note: Ellwood refers to (YE + P1/SN - RM) as the "mortgage coefficient." It is true that it is a coefficient for the loan-to-value ratio, but I suspect that the real reason to bundle this expression up and give it a name was to facilitate the practical application of the algebra with pre-computed tables in a time before calculators and computers. Submitted by SW

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