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Investment Tip: Maximize Returns Using The Rule of 72

Many people are a little apprehensive when it comes to any kind investing; real estate is not an investing exception.  There are many different ways to make money using your real estate, some of the most common are from purchasing below market value, cashing out on appreciation, renting your property, or running a goods and services sales business from your real estate.  However, there are still many more methods of generating cash from your real estate, for example, just to name a few more, withdrawing an equity line of credit to leverage into another investment, tax incentives, and industrial potential such as mining, foresting, and manufacturing, or agricultural use.  If you wanted to get really creative, I’m sure you could think up 100s, if not, 1000s of potential uses for a piece of real estate within these categories alone.

In all of these many examples, there is a simple mathematical rule all investors should take advantage of in order to maximize their return on their investments.  That rule is The Rule of 72.  The Rule of 72 works by taking the number 72 and dividing it by the return on your investment, which will give the answer of the number of years it will take for your investment to double in value.  For example, if you are making 9% on your money in the stock market, then every eight years, your investment will double.

Although the Rule of 72, in itself is extremely simple to use, remember, you always need to think of how many ways your investment is actually making you money (and losing money) before generating a true number for a rate of return.  For example, in real estate, your renter may be paying rent each month which is returning 10% annually; however, you may also be making 5% in appreciation on your property annually, and also receiving an additional percentage of X discounted on your taxes each year.  Perhaps you have even sold some rights to your land to another “renter” who is using part of it for storage or perhaps taking raw materials such as trees, dirt, minerals, water, wildlife, or other valuable items which are also providing you income.  All of these sources of income are called “income streams” and a good investment will almost always have more than one.

And, of course, every investment has some form of maintenance.  In the case of real estate, perhaps hiring a professional property management company, maintenance, repairs, and now and then, evicting a bad tenant, are some of the upkeep expenses that you will encounter.  Keep in mind, although a percentage or two seems miniscule in many respects, when using the Rule of 72, one or two percent can actually be the difference of several years in doubling your money.  For example, that same 9% return on investment which doubles your initial investment money in only eight years, if dropped to an 8% return, will take a full extra year to double.  This adds up significantly over the course of a lifetime.  A good poker player will tell you that it’s not the rare huge pot that wins a poker game, it’s the many small ones that do.   Holding out for only that one rare mega win will usually just make it so that someone else is building a new casino for you to play and pay, leaving you empty handed and scrabbling with an unsatisfying income.

Thank you very much for reading my blog, I hope this information helped you out.  For this blog and other helpful tips and tricks please visit our tourism and real estate website http://PlacesInLasVegas.com or, for all aspects of general real estate, our parent website http://LasVegasRealEstateConnection.com.  My team offers several services; buyers, sellers, distressed sellers, renters, and property management.  Honest and truthful professionals to a fault.  Call us direct @ 702-222-0815.

 

Sincerely,

 

 

James Bellile

 

*All blogs are personally written by James.  Although we encourage and are grateful for sharing, all information is copyrighted by James and needs to be given credit.  Thank you.

 

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