.The rule of 72 combined with the 1% rule in Real Estate investing!!
Today I wanted to introduce you to the rule of 72, a very useful tool not many people know about. It is very simple and allows calculating the number of years that your investment will take to double: just take 72 and divide it by the interest your money is earning (please note, the interest is compounded meaning it is re-invested every year and taxes are excluded meaning it would work best for RRSPs / 401Ks):
72/ 4% =18 years to double
72 / 5% = 14.4 years
72 / 6% = 12 years
72 / 10% = 7.2 years
72 / 15% – 4.8 years
On the example above it will take 18 years to double your money if invested at 4%. We, real estate investors, of course, do not work with just 4% returns 😊. Here is where the rule is useful, say you will need $1.5M in retirement and only have $200K to invest now. Assuming you invest in an investment at 12% returns, your money will double every 6 years (72/12%=6years). So after 6 years, you would have $400K, after 12 years $800K and after 18 years $1.6M – retirement.
Want to retire even faster? There are two options here: either invest more money over time or find investment opportunities with interest higher than 12%. If you think it is impossible – think again.
The 1% rule click here for full blog
Example 1: If you invest in a real estate property worth $150,000 and can make $1500 per Month, (Hence the 1% rule) (Defined by The rent per month is at least 1% of the net purchase price)
Your Down Payment of 20% = $30,000 plus closing costs and getting the home ready= $35,000 total investment.
Principle, interest, insurance taxes etc / month = $629/month
Income from property = $18,000/year(Rent of $1500×12) – ($629 x12mth = $7548 ) = $10,452 – misc expenses $3000 = $7452 profit/year
Return on Investment = $7,452( Income for year) / $35,000 (total amount invested) = 21% return on investment.
Of course, this looks amazing yet it happens, and the smaller you can put down the bigger the ROI. But it is possible. Different parts of the country have booms and busts all the time. You can even invest in other countries like me as well.
But of course, there is time and money invested as well, unlike some other investments like IRA’s, stocks, bonds etc. You also can benefit from depreciation, appreciation, and other tax benefits investing in real estate making your investment even more powerful but the numbers can get tricky.
All I am trying to say is the opportunities are all around us – just need to creatively find them.
Jay Bru
480-466-4917
jay@jaybrugroup.com
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