RealSpeak: Time Value of Money
Posted date: October 28, 2020
TweetTIME VALUE OF MONEY
Time Value of Money (TVM) is the concept that the amount of money you have in the present is worth more than the exact face value amount in the future, primarily due to its potential to earn through interest. Basically, Php1,000 now is worth more than Php1,000 a year after. “How much more?” you might ask. The equation to determine the future (and present) value of money is:
FV = PV x [1 + (i/n)](n x t)
where:
FV – Future Value
PV – Present Value
i – interest rate
n – number of compounding periods per year
t – number of years
So for example, you want to know the future value of Php1,000 3 years from now with an interest rate of 1% compounded annually:
FV = 1000 x [1 + (0.01/1)](1 x 3) = Php1,030.30
You may think that you are not losing money simply because you are not spending it, but that’s not entirely true. Look at it from this perspective: you are losing money with every passing day if you do not seize the opportunities to grow your money during that time, either through passive (investment vehicles) or active income (business). The purchasing power of money also decreases with inflation (as of October 7, the year-to-date inflation in the Philippines is 2.5%).
TVM IN REAL ESTATE ACQUISITION
It goes without saying that real estate acquisition requires a lot of money. Given the concept of TVM, it would be wise for property buyers to settle financial obligations via installments (amortization) even if they have enough cash. Instead of shelling out Php10M cash up front to buy a condominium unit, you can pay a downpayment for a much smaller sum and settle the balance in a span of several years (through bank financing). In both primary (direct from real estate developers) and secondary markets (resale), the option to finance your acquisition through mortgage is available. In Top Realty, we have partnerships with several established banks that can offer the best terms, lowest interest rates, and quickest processes.
The objective is to let the rest of your money “go to work” – as stated above – to generate more income that can cover the cost of your property acquisition, among others. You can also use the property to generate rental income, and utilize that to cover all or part of your monthly installments.
CASE STUDY
Let us show you one way of letting your money go to work through real estate investment by citing a premier preselling project in Metro Manila: The Velaris Residences. The Velaris Residence is a luxury condominium development by Robinson Hong Kong Land in Pasig City, with a completion date on September 2024. A 46 sq.m single-bedroom executive unit in this particular development costs P14,000,000 with a downpayment of P1,000,000 spread over one year. After a year, that unit will cost P14,350,000 (at least due to inflation, more with capital appreciation), and your P1M will have earned you P350,000 – a whopping 35% return on your investment. Now that is absolutely a substantial yield which beats inflation by a mile! These are the kinds of opportunities that you surely shouldn’t miss out on!
Eager to get your feet wet or dive at the deeper end of the pool? Contact us now and we’ll gladly show you how to grow your money through real estate investment!
Click on the link below to learn more about The Velaris Residences:
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