COMPOUND INTEREST as it relates to an apartment building Investment
$10,000 turns into $60,000 in 10 years. Here’s how it works: $10,000 turns into $60,000 in 10 years. Here’s how it works: First year interest is added to principal, and then in year 2, the interest is calculated on the new amount. Example: $10,000 + 20% interest = $12,000. This makes your new principal $12,00.00. Year 2 =$12,00.00 + 20% = $14,400.00. Interest is earned on interest. This is the principal of compounding.
A good example of compounding happened to my father. He purchased his home in Palos Verdes for $330,000 in 1965. In 1995 he sold the same home for $925,000. He said: “How did this happen?” I pointed out to him that his home had increased in value, (compounded) for 30 years at a 3.5% rate. The first year of appreciation was $11,550. By year 29 his home was appreciating at the same 3.5% rate, but this was on a value of $900,000, equaling $31,500 per year appreciation.
Over time, compound interest adds more value much more rapidly than simple interest.