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When investing, it's important to plan ahead. And when planning, it's critical to know how to estimate what your returns will (might) be. In order to estimate properly, you need to have a feel for how the investments you've done in the past have worked out, as similarities to past investments can give clues as to how future investments might work out.
Also, as with all investing, time is important. If your investment doubled over the course of a decade, that would be a very different story than if it doubled in a year.
Four years and seven months ago, I bought a condo to live in. I paid $350,000 for the condo (using a bank loan, of course). Today, the condo is thought to be worth* $430,000.
What is the annualized rate of appreciation on my condo since I bought it?
* I use the term 'thought to be worth' because until I put it on the market and start receiving offers for the condo, the valuation is only an estimate based on similar properties that have sold recently nearby. These similar properties are commonly referred to as 'comps', which is short for 'comparable properties'.
Four years and seven months is 48 + 7 = 55 months.
First things first, make sure the calculator is using 12 Payments per Year.
N: 55 (I bought the condo 55 months ago)
I/YR: (This is what I'm trying to find)
PV: -350,000 (I bought the condo for $350,000)
FV: 430,000 (The condo is valued at $430,000 today)
My condo has seen an annualized appreciation of 4.50% over the past 4 ½ years or so.
What do you think? Would knowing the historical rate of appreciation assist you when trying to decide how much to offer on a house? Or when you're trying to determine a target timeframe for a future sale? In what other situations would this sort of information be useful to you? Let us know in the comments!