How Does Compound Interest Work in Real Estate?

[Ethan Carbonaro]

Hey all!

I'm struggling to understand what seems like it should be a simple concept: compound interest in real estate.

Here's my dilemma. I used two calculators: a rental property calculator and a compound interest calculator. For the rental property calculator, I plugged in a $43,000 down payment (20% on a $200,000 property + $3000 in fees) plus some other figures and it gave me an IRR of 12.8 percent over 30 years. The total profit when sold added up to $662,022.

When I plugged in $43,000 into the compound interest calculator and had it compound at 12.8% over 30 years, the total was WAY higher at $1,595,929.

Why is this? What am I not taking into account in order to get $662,022 up to $1,595,929? How can I leverage compound interest in real estate investing?

Any help would be greatly appreciated! Thanks in advance for helping me understand.

[Taylor L.]

IRR isn't the same as compound interest. It's a very different calculation.