Hi Guys,
I had a question on acquisition modeling. So when I have an annual model and try to convert it into a quarterly model, I am not getting the same number in annual rents.
For example, say I have a annual rent of $1200 and monthly rent of $100. If my given growth rate is 3%, I can use the formula (1+3%)^(1/12)-1 to get my monthly growth rate. But when I apply an annual growth rate to the annual rent and monthly growth rate to monthly rents, I am not getting the same annual rent at the end of the year. If you look below, you will see that the annual growth rate gives me $1,236, while the monthly growth rates gives me $1,216.. any idea what I am doing wrong?
Thanks, Ahsan
Annual Rent - Year 0 1,200.00 Monthly Rent - Year 0 100.00 Months 12.00
Annual Growth 3.000% Monthly Growth 0.247%
Annual Rent - Year 1 1,236.00 Annual Rent - Year 1 1,216.41 ^ Based on Monthly Growth Rates
Month Rent 1.00 100.00 2.00 100.25 3.00 100.49 4.00 100.74 5.00 100.99 6.00 101.24 7.00 101.49 8.00 101.74 9.00 101.99 10.00 102.24 11.00 102.49 12.00 102.75
Why would you grow your rent monthly? Seems odd. You'd normally have your tenants sign year-long contracts (at least) and then pay you the same amount every month for at least a year. Are you trying to account for people signing leases at different points in time?
If so, maybe a waterfall is the best approach.
Otherwise it should be very simple calc. E.g.
Annual Rent in Yr 1 is $1000. Grown at 3% is $1030. Monthly Rent in Yr 1 is $83.33 (x12 is 1000). Grown at 3% is $85.83 (x12 is 1030)
Think you might be over complicating this a bit
3%/12= .0025 not .00247. Your monthly growth rate seems wrong.
Also not sure why you are doing this calculation to begin with
Thanks this helped clear things up.. I was definitely over complicating it lol
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