Willie owns and manages a number of real-estate rental properties in town and en

Question

Willie owns and manages a number of real-estate rental properties in town and enjoys being his own boss. At 46 years old, Willie figures he would like to retire after working for 10 more years, so he is starting to think about investing for the future. His latest investments have been successful – after selling a four-unit apartment building and a town house, Willie has $400,000 in the bank and is debt-free. With only 10 years before retirement, Willie wants to make solid financial decisions that will limit his risk exposure.

An attractive property has come on the market this week – a pair of townhouses with a great view. The rental units are in good condition and would need only some minor repairs in order to get them into shape for rental. They are in a good location for vacationers and summer rentals. The price tag for the two townhouses totals $275,000 – well within his range. He figures he can invest the remaining $125,000, and between the two hopes to have $1 million on which to retire by age 56.

Willie knows that real estate in this general location appreciates by about 6% a year.

Assuming that this trend continues, what will be the future value of the $275,000 townhouses in 10 years?

Thank you financial math expert!

Explanation / Answer

If you have $275,000 in year one, you'll have 275,000*1.06 in the second year, then in the third year you'll have (275,000*1.06)*1.06...this pattern continues and you can derive the formula for compound interest:
A=P*(1+r)^t
A=275000(1.06)^10
$492,483.11

Related Questions

Navigate

• Browse (All)
• Browse W
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.