It's widely known that Real Estate is an excellent investment because of its many benefits, such as Passive Income, Tax Advantages, and Above Market Returns, to name a few. We will be going over one that is not talked about a lot, though, and that is how compound interest works in Real Estate.
What is Compound Interest?
Compound interest is interest calculated on the initial principal, including interest gained on all accumulated interest from previous periods. An example of this would be the scenario almost always used by financial professionals: the "penny doubled for 30 days scenario."
Compound Interest Applied To Real Estate
Multifamily is where we've seen this work the best. Let's say you invest $100,000 into a Multifamily Syndication, and the operator over that property provides you with a 100% ROI after five years of holding that property. After five years, your $100,000 is now $200,000.
Let's say you reinvest the $100,000 plus the additional $100,000 to total $200,000 and receive another 100% ROI over five years. You then would have $400,000. This is assuming everything goes perfectly.
If you started your initial investment at 45 years old and kept this same strategy until 65, which would be a total of 20 years, you would have $1,600,000 to live on, and your initial investment was $100,000.
Starting is the best thing you can do regarding real estate. It's better to invest than to sit on the sidelines and miss valuable opportunities. Investing in Apartment Buildings passively is an excellent way to create a great retirement fund. It can also be used to free yourself from the daily grind of your work by replacing your Active Income with Passive Income.