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The Time-Value of Money in Real Estate: Understanding a Core Finance Principle

The time value of money (TVM) is an important concept in finance that helps investors maximize their earnings. The concept is relatively simple:

Money now is worth more than money in the future.


Because money now has earning potential. That is, your money can make more money if you have it right now.

The Time-Value of Money in Action

Imagine someone offers you the choice between $1,000 today or $1,000 in one year. You’d much rather have that money right now so that you can put it to work rather than getting that money in the future.

For example, imagine you place that $1,000 in an index fund that earns 5% over the course of the year. At the end of 12 months, you would have $1,050, which is better than getting $1,000 at the end of the year.

The numbers grow exponentially when you choose an investment vehicle that offers the potential for monthly cash flow plus a return upon exit (i.e. sale or refinance). This is where real estate syndication becomes a valuable investment strategy

Here’s another example: Imagine you invest $50,000 in a real estate syndication that delivers a cash flow of 5% annually and is then sold five years later for 50% more than the purchase price. Considering your initial investment was $50,000, and you get a total of $87,500 back at the end of the fifth year - that’s a 75% ROI! That’s why you’d much rather have $50,000 right now than $50,000 in five years. The best thing you can do with your money is invest it strategically.

Keep in mind, investing in real estate, while capable of producing attractive returns, entails a high degree of risk, including illiquidity of the investment and loss of principal. The example above is meant to demonstrate how the time value of money works in a real estate investment setting, but there’s no guarantee that you will enjoy this type of return through real estate syndication.

illustration representing the time value of money using a dollar symbol and clock

Interested in putting your money to work? Find out how much you need to invest in order to achieve your long term financial goals using our Cashflow Calculator.

Graph demonstrating the potential amount of cash flow an investor can ear using Madison Investing's passive investing cash flow calculator

Get Started With Real Estate Syndication

Real estate syndication is one of the most fruitful investment vehicles when looking to take advantage of the time-value of money. While nothing is guaranteed, Madison Investing has a proven track record of helping investors turn investments into consistent cash flow with strong returns.

To learn more about real estate investing, you need a Blueprint. Blueprint for Passive Real Estate Investing is a 7-part course that educates eager investors on how to get started with an effective real estate investment strategy . To schedule time to chat about real estate syndication and your financial goals, get in touch with us.



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