Compound Interest and Rate of Returns

[Damian P.]

Playing around with a compound interest calculator for the first time, its very exciting, and brought up a question on the correlation between net worth and rate of returns on real estate over a 30 year career.

A few variables I plugged in for 30 years compounded (I choose to compound “monthly” as opposed to “yearly” which makes the final number higher. Assuming here that all money from rent goes back into the fund monthly (monthly rent), and compounds the whole way, but please correct me if I’m wrong!

Starting capital: $15,000 (just bought first house which I intend to live in and the rent in 2-3 years)

Monthly addition: $5,000 (Contribute this today from job plus payments on house; as I build cash flow this number should increase over time)

Rate of Return and Net Worth after 30 years; is where it gets interesting:

7% (the stock market): $4,993,000

10%: $11,580,000

15%: $35,842,000

20%: $120,000,000

25%: $425,000,000

30%: $1,552,206,000

Clearly, rate of return is most important factor long term. If I change my monthly contribution to $20,000/month @20% return, I’m left with $465,000,000 after 30 years.

So, first it’s crazy the potential for wealth holding over 30 years with compound interest. Second, what would you say is a sustainable rate of return (cash on cash) over the long haul in real estate? What have people seen in their businesses?

I know the BRRR strategy is said to at times provide up to 50% return on your cash, and through standard rental properties you can get up to 30-35%, however this decreases as the loan matures.

Thanks for any input! Crazy to think over 30 years you can turn $15,000 + $5,000/month average investment over 30 years into potentially $500,000,000 - $1,000,000,000!!

On another note, is it worth investing into the stock market at all with an average return of 7%?