Here’s How You Can Double Your Money Every Two Years
DISCLAIMER: This blog was written for informational purposes only — do not make financial decisions without first speaking to your financial advisor and accountant.
Imagine if you could double your money every 2–3 years. That would be incredible, right? It sounds impossible, but I speak from experience when I say I know that it works.
Since 1999, I’ve been using a simple formula called the ‘Rule of 72’ to amass millions in real estate here in Las Vegas. It kept working for me even when the real estate market crashed.
This rule allows you to easily figure out how long an investment will take to double at a fixed annual rate of interest. All you do is divide 72 by the annual rate of return. This will give you a rough estimate of how long it’ll take for the initial investment to double.
Here’s an example:
$300K purchase price
20% down payment = $60K
Loan amount = $240K
Principal/Interest = $1,288/m
Taxes/Insurance = $225/m
Total payment = $1,513/m
Rent = $1,600/m
Approximately $100 per month in cash flow is not a lot to get excited about (it’s only 2% ROI). However, if you look further, the principal paydown on the loan is an additional $300 per month. With principal paydown and cash flow totalling $400 per month, you now have 8% ROI.
Even if the house never goes up in value, you’re still getting a great rate of return on your investment and building a nice nest egg. Where the real excitement begins is when you take a look at historical averages and potential appreciation on the home. In the past 12 months, we’ve seen home prices increase 10–12% in Las Vegas depending on which report you look at. In this scenario, if the property appreciates 10% in a year, your return on investment just shot up to 58%.
Now, I realize that 10% is neither sustainable nor typical. However, even if we cut it in half and use a number more commensurate with historical averages, even at 5% your ROI is 33%. At 33%, you can double your money roughly every 2 years.
The most important thing is to buy smart. That means don’t overpay for a home.
If your mortgage payment is $1,800 per month and only rents for $1,500 per month, that can get you in trouble when the market shifts. I have properties that I owned way before the last real estate market crash, and I still own them. I never sold them and just held through the crash because I had cash flow on the property. A lot of speculators got caught with their pants down when the tide turned in 2007 because they had horrible loans and negative cash flow.
Don’t be caught with your pants down. :)
My mission is to help my clients and agents create multiple income streams so that they have greater freedom to do what they love. If you are a Realtor, educate your clients on this simple concept and I promise you, you will have a client for life.