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How To Calculate Simple Interest for the Real Estate Investor


This is the most basic of the interest calculations. The accumulation of simple interest will be of interest to many of your real estate investor clients.
Difficulty: Easy
Time Required: Five minutes

Here's How:

  1. Principal X Rate X Time = Interest Amount

    Principal is the amount upon which interest is being earned, rate is the interest rate in percent or decimal form and time is the time upon which interest is being earned. Example:

    $100,000(Principal) X 0.08(8% Rate) X 1 Year (Time) = $8000 Interest

  2. Principal X {1 + (Rate X Time)} = Total Amount

    All we're doing here is getting the total amount in hand at the end of the interest bearing period. In this first calculation, it's for one year, at the end of which, we'll have the original $100,000 + Interest.

    $100,000 X {1 + (.08 X 1)} = $100,000 X 1.08 = $108,000

  3. Let's do that again for three years:

    Here we'll multiply the .08 (8%) rate times 3 years to equal .24.

    $100,000 X {1 + .24} = $124,000

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What You Need

  • Nothing but your pencil or a calculator.

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