The rule of 72s is a rather obscure but useful rule of thumb you can use to quickly calculate the approximate amount of time it will take for your real estate investment property at compound interest to double in value.
For example. Let’s assume you own an 8-unit rental income property on which you are estimating an annual appreciation rate of 12% and want to know how many years it will take for the property to double in value. Divide 72 by the annual appreciation rate to determine the years. That is, divide 72 by 12 and you can quickly calculate that your property will double in value in approximately six years (72 / 12 = 6).
Okay, now let’s transpose the formula to calculate the annual appreciation.
For example. Let’s assume that you’ve owned a property for three years, feel that its doubled in value, and would like to know the annual rate of appreciation you’ve experienced. Divide 72 by the number of years to determine the annual appreciation rate. In other words, divide 72 by 3 and you will see that you’ve experienced an approximate rate of growth of 24% per year (72 / 3 = 24).
The answer isn’t precise so run to the bank with it. It could, however, be helpful when you’re simply looking for a quick way to determine the approximate number for a specific income-producing property.
