How long does it take for your property to double in value?
It’s a question I hear all the time and unfortunately the response that I usually hear with it, from a number of different sources, is roughly 7 to 10 years.
Now that response is not only wrong, but it’s also got no substance.
You see that assumes that every property grows at relatively the same rate, and assumes that every property appreciates – which does not happen.
It also assumes that every property is an investment grade asset that works very hard for you, and that’s simply not the case.
Many properties do not appreciate in value strongly.
Many properties do not actually perform at wealth producing rates of return.
In fact I would say 1 to 2% of properties that are currently on the market are what I would classify as investment-grade assets.
So, to understand how long it takes for your properties to double in value is to focus on your proeprty’s growth.
You need to understand how much it’s grown by in the last 10 years and put that into a percentage.
And that is the average annual growth rate.
Just take the growth as a percentage.
There is a shortcut that we use in the property industry called the rule of 72.
It’s just a very simple calculation to estimate how long it takes for a property to double in value, you take the number 72 and divide that by the average annual growth rate.
For example: If you found that a property showed a growth rate of 7% you take 72/7 and what that will give you 10.2.
Therefore it takes 10.2 years for a property to double in value that is growing at 7%.
Now let’s say for example you found a property that didn’t have good growth.
Let’s say maybe 2%.
You’ll take 7/2 and that gives you is 36.
So that takes 36 years for that property to double in value that was growing at 2%.
It shows the importance of focusing on growth and also focusing on out performing the averages of growth.
So when you are buying a property, don’t just buy any property and assume that it’s going to work for you in the future.
Make sure you dig a little deeper and focus on growth, reach out to someone that can assist you with that calculation if need be.
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