How to Calculate Future Value of Real Estate Investment
Original post by Mark Kennan of Demand Media
There are no absolute guarantees when you make investments, especially in real estate. However, you can estimate the future value of a real estate property based on your expected rate of increase in the value, and for how long you own the property. Making these estimated calculations can help you decide if the purchase is right for you, or if you are better off looking elsewhere for investments. Remember, past performance does not guarantee future results and your real estate investment could lose value.
Divide your expected annual growth rate of your real estate investment by 100. For example, if you expect it to grow at a rate of 3.9 percent per year, divide 3.9 percent by 100 to get 0.039.
Add 1 to the annual growth rate as a decimal of your real estate investment. In the example from the previous step, add 1 to 0.039 to get 1.039.
Raise the result to the Y power, where Y equals of the number of years you plan to hold your real estate investment. In this example, if you plan to hold your real estate investment for 7 years, raise 1.039 to the 7th power to get 1.307.
Multiply the result by the current value of your real estate investment to calculate your estimated future value of your real estate investment. In this example, if you bought the real estate investment for $340,000, multiply $340,000 by 1.307 to find the estimated future value equals approximately $444,000.
- University of Oregon: Calculating Growth Rates
- DePaul University: Compound Interest Formula
- University of Arizona: Compound Interest and APY
About the Author
Mark Kennan is a freelance writer specializing in finance-related articles. He has worked as a sports editor for "Ring-Tum Phi" and published articles on a number of online outlets. Kennan holds a Bachelor of Arts in history and politics from Washington and Lee University.
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