# A simple property investment rule that makes asset selection easier

Property investing comes with its fair share of rules that you’ll need to follow, if you hope to be one of the relative few success stories to create wealth through residential real estate.

One in particular that you’d do well to know when evaluating your next potential property investment is what’s referred to as the rule of 72.

## What is it?

The rule of 72 is a simple calculation that gives you a rough idea as to how long it will take to double your invested money.

Let’s say you want to achieve a return of 8 per cent per annum on a cash investment.

You divide the number 72 by your ideal (and/or estimated) annual rate of return when applying the rule, as follows…

72 ÷ 8 = 9 years to double your money

The rule can also be used to determine how long it will take for the cost of goods and services to double, when 72 is divided by the current rate of inflation.

If inflation were tracking at 2 per cent for instance, the sum would look like this…

72 ÷ 2 = 36 years for prices to double

## How does it work when applied to property investment?

Imagine you buy an investment property (say a 2 bedroom apartment) in one of Melbourne’s inner suburbs for \$550,000.

Over the last decade Melbourne properties have averaged around 7% capiatl growth each year, so the rule would be applied in the following manner…

72 ÷ 7 = 10.2 years to double your money.

You apartment is likely to be worth around \$1.1 million in 10 years time and if you look back at the records you’re likely to find it was worth around \$275,000 ten years ago.

Not a perfect science

Of course as with all things property related, nothing is ever set in stone and the rule of 72 is no exception.

But it can be useful when evaluating different investment locations to determine what type of performance and returns you might anticipate achieving, and how quickly.

Plus it’s a fun little exercise you can do without paying your accountant by the hour!

Subscribe & don’t miss a single episode of Michael Yardney’s podcast

Hear Michael & a select panel of guest experts discuss property investment, success & money related topics. Subscribe now, whether you're on an Apple or Android handset.

Need help listening to Michael Yardney’s podcast from your phone or tablet?

We have created easy to follow instructions for you whether you're on iPhone / iPad or an Android device.

Prefer to subscribe via email?

Join Michael Yardney's inner circle of daily subscribers and get into the head of Australia's best property investment advisor and a wide team of leading property researchers and commentators.

Kate Forbes is a National Director Property Strategy at Metropole. She has 15 years of investment experience in financial markets in two continents, is qualified in multiple disciplines and is also a chartered financial analyst (CFA).

### 'A simple property investment rule that makes asset selection easier' have no comments

Be the first to comment this post!

##### Michael's Daily Insights

Join Michael Yardney's inner circle of daily subscribers.

NOTE: this daily service is a different subscription to our weekly newsletter so...

Subscribe!