Of all the things you can learn about money –the rule of 72 should be at the top of your list.
The Rule of 72 is a shortcut to estimate the number of years required to double your money at a given annual rate of return. The rule states that you divide the rate, expressed as a percentage, into 72: Years required to double investment = 72 ÷ compound annual interest rate. For example, let’s say you can earn a 10% rate of return. How long will it take $1,000 to grow into $2,000?
72 / 10 percent = 7.2 years
In this example, if you invested $1,000 into an account that earned a flat 10% annual rate of return, after 7.2 years, your investment would be worth around $2,000. Conversely if you want your money to double in 6 years, you’d need to be earning 12% interest (net of taxes and fees).
So how does this relate to Real Estate? Well, consider this rule when saving for your down payment. You have X amount now, invested at X interest rate, and therefore you can calculate how long it will take for your investment to double.
CHEAT SHEET – Here’s a list of interest rates, and the corresponding amount of time to double:
1% – 72 years
2% – 36 years
3% – 24 years
4% – 18 years
5% – 14 years
6% – 12 years
7% – 10.3 years
8% – 9.0 years
9% – 8.0 years
10% – 7.2 years
I hope this helps, and please let me know if you have any questions.
Best,
-D