Tuesday, November 12, 2013

The Time Value of Money and Your Real Estate Note

You own a real estate note that will pay you a steady monthly income of $700 per month, which sounds good, but what will $700 buy you in 10, 20, or 30 years from now? If you're not familiar with the concept of the Time Value of Money (TVM), than you're probably thinking the answer is $700, is $700 and will always be worth $700. Well you may be surprised that a dollar today will not hold the same value a dollar will in a year or more.

Time Value of Money (TMV) Explained:
The time value of money is the principle that a certain currency amount of money today has a different buying power (value) than the same currency amount of money in the future. Here's an example:

If you purchased an item for $700 in 1963, it would cost you $5,356.35 in 2013 to buy that same item. An item that cost $700 in 1983, would cost $1,645.63 in 2013. Why? Because inflation, prices and the cost of living continue to rise and erode your monies buying power. Therefore, the time value of money is all about determining what value will your money have over time.

After calculating the time value of money, you may find that holding a note with a fixed interest and a set monthly payment may not be a good investment over a period of 20 years or more. If you're looking for a reliable, monthly, retirement income from a single note that you can live off of, you may want to reconsider and look into other investment options. You should speak with a financial advisor about the options that are available to you and what is best to achieve your financial goals.

Remember that our company will also evaluate and provide you with a lump sum offer for your note with todays dollars.

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