Landlording & Rental Properties

Apartment Building Investment and the Time Value of Money

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The apartment building investor should always be aware of the amount of money that he or she has invested in an apartment building and more importantly the “time value” of that money. This concept of money’s value over a period of time becomes extremely important when comparing and contrasting different apartment building finance strategies. For [...] View the full article: Apartment Building Investment and the Time Value of Money on The BiggerPockets Blog. This content is Copyright © 2017 BiggerPockets, Inc. All Rights Reserved.

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    agent
    Replied over 11 years ago
    this math is wrong. 0 1 1,000,000 1,000,000(1+.10) 2 3 1,000,000(1+.10)(1+.10) 1,000,000(1+.10)(1+.10)(1+.10) Thus, the value of the land at the end of year three can be found by: 1,000,000(1+.10)(1+.10)(1+.10) = $1,191,016.00 should be 1,331,000 unless I’m wrong for some unknown reason.
    Eric Conrad
    Replied over 11 years ago
    agent, I was going to say the same thing…
    Ted Karsch
    Replied over 11 years ago
    Both of you are correct. My math was off. 1,331,000 is the correct amount. Thank you for pointing it out.
    Ted Karsch
    Replied over 11 years ago
    Both of you are correct. My math was off. 1,331,000 is the correct amount. Thank you for pointing it out.
    Shawn
    Replied over 11 years ago
    1,331,000 is wrong isn’t $1,300,000? Reply Report comment
    Shawn
    Replied over 11 years ago
    1,331,000 is wrong isn’t $1,300,000? Reply Report comment
    Shawn
    Replied over 11 years ago
    1,331,000 is wrong isn’t $1,300,000?
    steve jenings
    Replied over 11 years ago
    Made many a mistake with moving those 2 decimals over can be costly.
    Alice Spencer
    Replied over 11 years ago
    I always check and double and triple check one small mistake could break you especialy with the tight margins today.
    Alice Spencer
    Replied over 11 years ago
    I always check and double and triple check one small mistake could break you especialy with the tight margins today.
    Gregory Bain
    Replied over 11 years ago
    Math doesn’t matter. It is all speculation on what the value will be in the future. How come no one said the answer should be $669,000 or 1 million less the decline value of today’s market? It is a nice post and a nice formula, Ted. But the value or preceived value does not continue to climb every year. In my opinion – of course.
    Gregory Bain
    Replied over 11 years ago
    Math doesn’t matter. It is all speculation on what the value will be in the future. How come no one said the answer should be $669,000 or 1 million less the decline value of today’s market? It is a nice post and a nice formula, Ted. But the value or preceived value does not continue to climb every year. In my opinion – of course.
    Ted Karsch
    Replied over 11 years ago
    Greg, you are right. Thanks for pointing that out. Commercial properties can drop in value just like residential property, however, in my opinion, commercial properties like apartment buildings are better suited as investment vehicles then single family homes. The main reason for this is the fact that apartment buildings generate a steady stream of income. Also, the value of an apartment building is partially determined by the amount of income that it brings in. This helps to keep valuations more closely aligned with reality. For example, a lot of people who bought vacation homes in past 5 years were told by their realtor that the vacation home was a great investment, even at an inflated price. Unfortunately, many of these vacation/investment homes are now facing foreclosure because the owners weren’t able to collect enough rent to pay the annual mortgage payments.
    Ted Karsch
    Replied over 11 years ago
    Greg, you are right. Thanks for pointing that out. Commercial properties can drop in value just like residential property, however, in my opinion, commercial properties like apartment buildings are better suited as investment vehicles then single family homes. The main reason for this is the fact that apartment buildings generate a steady stream of income. Also, the value of an apartment building is partially determined by the amount of income that it brings in. This helps to keep valuations more closely aligned with reality. For example, a lot of people who bought vacation homes in past 5 years were told by their realtor that the vacation home was a great investment, even at an inflated price. Unfortunately, many of these vacation/investment homes are now facing foreclosure because the owners weren’t able to collect enough rent to pay the annual mortgage payments.
    Ted Karsch
    Replied over 11 years ago
    Greg, you are right. Thanks for pointing that out. Commercial properties can drop in value just like residential property, however, in my opinion, commercial properties like apartment buildings are better suited as investment vehicles then single family homes. The main reason for this is the fact that apartment buildings generate a steady stream of income. Also, the value of an apartment building is partially determined by the amount of income that it brings in. This helps to keep valuations more closely aligned with reality. For example, a lot of people who bought vacation homes in past 5 years were told by their realtor that the vacation home was a great investment, even at an inflated price. Unfortunately, many of these vacation/investment homes are now facing foreclosure because the owners weren’t able to collect enough rent to pay the annual mortgage payments. Reply Report comment
    Gregory Bain
    Replied over 11 years ago
    Ted, I have never sold an apartment complex – not many in my area and I have only seen one come on the market. That investor got a real steal. Of course, he had to invest in repairs and had to have the money power to do so. I don’t think he will ever be selling that complex at a loss. In fact, he made so much money on the deal he purchased a tract of land and built another high end (for my area) apartment complex. On the other hand, I have seen a lot of other “commerical” property that may take ten years to come back to the purchase price. And, there are many “projects” either on hold or moving at a snails pace in the commerical market today. But, you did start this post with the opening sentence of “apartment building investor” and I have no hands on experience to cast doubt on your time value of money. It is out of my league. Good Luck.
    Eric
    Replied about 10 years ago
    like a previous posted pointed, it’s important not to confuse precision (e.g. decimal points in your math) with accuracy (how closely does the 5% assumption match reality). .-= Eric´s last blog ..3 Secrets to Reading Housing data for the Real Estate Investor, Part 1: Understanding Seasonally-Adjusted Data =-.