Calculate Your Future

Real Estate Investments – Calculating Future Value

When determining what a property is worth, there are two major considerations: what it will rent for and how it will appreciate.  Determining what it will rent for can usually be done by comparing a sampling of rents from nearby rentals for sale in the MLS.  Property managers are also a good source for this information.  Some will even offer to provide a free analysis of the property for you.  For determining the future value of real estate, however, it’s a simple calculation.

Let’s assume that you do not have a crystal ball.  Real estate has historically appreciated at a rate between 3% and 5% per year.  The U.S. House Price Index shows that residential homes have risen at a rate of 3.4% per year on average since 1991.  3.4% is a safe bet for this purpose.  3.4% will be represented as .034 for the purposes of our calculation. 

For the calculation, add one to the growth rate (1 + .034) and raise this to the power equal to the number of years that you are projecting. 

Future growth =

For example

Your investor want to buy an investment property worth $200K and wants to know what the approximate historical value will be in 10 years.  Using a 3.4% average rate, we can calculate the future growth factor as follows:

Future growth = = 1.4

 

Multiplying this factor by the current value of $200,000 gives us the potential future value of the property.

Future value = 1.4 X $200,000 = $280,000

Or you can cheat by going to this online calculator of future value CLICK HERE.  Calculating future value is not an exact science and should be used as a tool, but not the rule.  Some markets are hot and appreciate at much faster rates and some are cool and values have been known to depreciate.  The longer you project out in the future, the more accurate (based on historical average) your prediction will be.

To make your dreams come true, Call The Easterbrook Team for your refinance and purchase needs.

916.850.6050 easterbrookteam@spmc.com 

John Easterbrook NMLS#226555

Patty Aguon NMLS#994635