Time Value of Money

Inflation is a quiet beast that gobbles up the true value of your money. In 1969, a loaf of bread cost 29 cents and a 3-bedroom house around $20,000. In 1999, just 30 years later, bread was $2.50 per loaf, and a 3-bedroom homes would set you back about $250,000.

If you received $1,000,000 between 1989 and 1999 through a structured payment each month, by the new millennium your monthly payment of $4,166 would be worth approximately $2,166. Inflation cuts your money’s true value nearly in half.

The chart below traces the path of the diminishing cash value of a $300 monthly payment over a span of 30 years. Your payments rapidly loses cash value the longer the payments stretch into the future


Important points to remember about the time value of money:

  • You have sold real estate property and are receiving payments (that is, cash flow) from that sale.
  • Your payments will continue some time into the future.
  • The dollars received in the later year’s payments of your cash flow will not have near the purchasing power of those received in the near term.

Pathfinder can calculate current “cash value” based on that long-term cash flow. You long-term cash flow – the stream of payments – is secured (guaranteed) by the property you sold. Remember: you are not selling the property – you have already done that. What you are actually selling is the stream of payments, secured by the property you sold.

To determine a cash value, consider these questions:

  • What kind of property is it? (Single family residence, Land, Commercial Property, etc)
  • Where is the property located?
  • What is the interest rate on the mortgage?
  • What is the dollar amount involved?
  • How long will is take to collect all of the mortgage payments?

Do you have questions about the Time Value of Money and how it affects your cash flow? Call Pathfinder Mortgage and Investments at 877-545-1011 or 386-872-7601 .