Future Value Factor

Also called the Future Amount of One or FV Factor, the Future Value Factor is a formula used to calculate the Future Value of 1 unit today, n number of periods into the future. The FV Factor is equal to (1 +i)^n where is the rate (e.g. interest rate or discount rate) and n is the number of periods. So for example at a 12% interest rate, $1 USD invested today would be worth (1 + 12%)^5 or $1.7623 USD five years from now.

One use for the FV Factor in real estate is to estimate future rent based on today’s rent, grown at some growth rate. So if an apartment unit rents for $1,000 per month today and rent is expected to grow 3% per year for the next five years, five years from now that same apartment unit will be expected to rent for (1+3%)^5 * $1000 or $1,159.27 per month.

The FV Factor is the inverse of the related PV Factor or Present Value Factor.

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