Am I Doing This Right? Monthly Cash Flow not matching Yearly...
Long story short, I am modeling real estate cash flow. But the sum of year 2 Rent Income with 3% Increases, doesn't add up to my monthly cash flow of the same year with the same growth rate.

for example: keeping it simple:

Rents are $20,000 per month. (10 Units @ 2,000)

Growth is 3% per year.

My Year 1 total is: $240,000

Year 2: $247,200

But when I go to my monthly, my Year 1 adds up to: $240,000

Year 2: 243,822

For my monthly growth rate, I translated the 3% yearly to the following monthly equivalent with this formula:

=(1+0.03)\^(1/12)-1

What am I doing wrong? Its driving me nuts! Thanks
[{"id": "irz5p45", "text": "You divide the 3%/12 not the 1.03%/12. I don't know how your modeling it but you can multiply the mo cash flow x (1 + (3%/12)).", "replies": [{"id": "is0e3a0", "text": "I dont believe you simply divide the yearly % by 12. From what i researched you had to do the exponent (1/12). Can you verify this ?", "replies": [{"id": "is1kgws", "text": "You're right. I put it in excel. You're answers will be different as you're compounding monthly vs once a year", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "is1pgkd", "text": "Generally speaking, your trying to convert an annual rate to a monthly rate but you should be adding \\^12 to annualize a monthly rate.   I do it this way (1+(.03/12))\\^12\n\n&amp;#x200B;\n\nHowever, i think you need to rethink your process.  I have never heard of the rent escalator compounding monthly...\n\n&amp;#x200B;\n\n240,000 \\* 1.03 = 247,000 for year 2\n\nor... 20k/mo for the first 12 months and then 20,600/mo for year 2.\n\nBut if you really are compounding monthly...\n\nMonth 13 rent would be =20000\\*(1+(0.03/12))\\^12 \\* (1+(.03/12))\\^12 = 20,608.32\n\nYour trying to apply the compounding interest formula to your rent growth field which is likely incorrect.  If you are trying to your DCF, just calculate your revenue, expenses, etc, for each year and then discount the entire annual cash flow.   result / (1+discount rate)\\^(yr#)", "replies": [{"id": "is315bg", "text": "No, the compounding is fine if it\u2019s for multi family", "replies": [], "depth": 2}], "depth": 1}]