A friend once asked why real estate investing is so powerful. I told him to read my book. No, really I sat him down and showed him the below example. I also told him this is just the tip of the iceberg.

"The most powerful force in the universe is compound interest"
Albert Einstein

What exactly did the brightest mathematician in the World mean by this? Well, would you believe me if I told you your 200,000 dollar home would be worth more than $864,388.48 in 30 years. Why is this, well this is the beauty of Compounding. For example, after the first year, assuming a 5% Appreciation rate the home would be worth $210,000. The best part of compounding is the next year you add 5% on to the $210,000 and continue to do this for ever. This would look something like this:

And so on…….
Now in this case, the home appreciated 5% annually. According to OFHEO (Office of Federal Housing Enterprise Oversight), the annural rate of appreciation of 2004 was 6.77%.

In addition to compounding and appreciation (the increase in the value of a Property due to changes in market conditions, inflation, or other causes) there is something called depreciation. You see, on any rental property you have, the government assumes this 'business asset' will depreciate over time even though this asset actually appreciates. What does this mean for the investor? Well, in addition to getting the appreciation of the property and compunding of that each year, the goverment will give you yearly tax breaks for the next 27 1/2 years. Income tax laws assumes that your buildings, their contents and various on-site improvements wear over time.