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The next time you sign a new lease, ask your manager if you could pay six months of rent in advance, in exchange for a 5% discount. This might not sound like a lot, but lake a look at the math…
Let’s assume that you pay a rent of $1,000 per month. For six months, your rent would be $6,000. With the five percent discount, you would end up paying $5,700. Essentially, you would be paying $5,700 in exchange for six payments of $1,000 per month. Put this into a financial calculator and… voila! You will find that it works out to a 17.83% Return On Investment (ROI). How does that sound?
Now, I admit that this is a little misleading. In order to attain that 17.83% return on investment, you would actually need to re-invest the $50 you save each month at the same rate. However, this scenario still yields a 10% annual return on investment, even if you don’t re-invest your savings each month.
When you consider that you would probably pay the rent either way, a double-digit return on investment isn’t a bad deal. Of course, the arithmetic will be the same – regardless of how much your rent costs.
I completed this calculation with the help of In A Day Development’s financial calculator. If you don’t already have a financial calculator, shoot over to their site and get one immediately for your phone, mac and /or iPad. It’s a necessary tool for calculating your return on investment, payment sizes, and the future value of your assets.