COMPOUND INTEREST

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.

Fascinating Facts:

 

A 100 watt light bulb will burn 90 lbs of coal over it's 750 hour lifetime.

 

An average home burns 10,000 lbs of caol each year.

 

Steve Nauert 

Ca. Real Estate Broker
License 00622276

310-493-1999