Net Future Value And Property Investing

Calculating the net future value of your property will help you plan for the future. Find out more about calculating the future value for property investing.

Looking Ahead – Your Guide To Net Future Value And Property Investing

If you’re looking to invest in an asset, like a property, having an idea of how much it will be worth in the future is essential.

The concept of future value is helpful for those involved in property investing because it can help them better understand their financial position, now and in the future. It also helps them get a better idea of income generation relating to their property.

Let’s explore what future value is, how it can be calculated, and how it can be a helpful tool to those looking to explore property investing for income generation.

What Is Future Value?

Put simply, future value is what a current asset, like a property, is worth at a future date based on an assumed rate of growth rate. Future value is a calculation that investors can use to estimate how much an investment today will be worth in the future. By doing so, they can get a rough idea of a property’s potential for income generation.

Future value isn’t an exact science, and many factors can affect it, including market volatility and uncertainty about investment conditions and inflation. However, it can be a helpful tool for investors, helping them make decisions and plan for their financial futures.

How To Calculate Future Value

Future value can be calculated using an equation. It’s important to remember that the equation assumes a constant rate of growth and a single payment. The basic formula is:

FV = I x [1+ (R x T)]

Here, the values are:

• FV = Future value

• I = Investment amount, also known as present value, or PV

• R = Interest rate

• T = Number of years

For example, if you wanted to work out the future value of a $1,000 investment held in a savings account for five years with 10% simple interest paid annually, you would calculate it as follows:

FV = $1,000 × [1 + (0.10 x 5)]

So the future value of this investment is $1,500.

In this core equation, we refer to simple interest, as in the interest rate applied only to the initial investment amount. With mortgage loans for homebuyers and those involved in property investing, simple (fixed) interest is the most common form of interest.

Now put this calculation into the context of investing in a property with a mortgage based on a fixed interest rate. Most mortgages have a 30- and 15-year fixed rate that don’t vary with the market. The interest rate doesn’t change throughout the mortgage term, so the monthly payments don’t change either.

Calculating The Future Value Of An Investment Property

To get a better idea of how much your property will be worth in the future, you should also work out your projected growth rate. You can work this out by adding one to the rate and raise this to a power that’s equal to the number of years you plan on having the property.

The formula looks like this:

Future growth = (1 + annual rate)^years

Let’s put that formula into practice. If you buy a property for $250,000 and want to estimate its value 15 years from now, you would use the following formula:

Future growth = (1 = 0.034)^15 = 1.65

You would then multiply this figure by the current value of the property to find the potential future value:

Future value = 1.4 x $250,000 = $412.500

Final Thoughts

Future value is a helpful tool for those looking to venture into property investing. It helps investors plan for the future and compare potential investments, helping them make decisions as to which option is best for them.

However, future value does have some limitations as it doesn't take into account external factors like inflation or a fluctuating housing market that might affect the value of investments.

Make the Most of Your Investment Property With Alcove Rooms

At Alcove Rooms, we can help you achieve maximum income generation through your property. We take care of everything, from finding long-term and reliable tenants to property inspections and landlord support. Contact us today to find out more.