Colli Real Estate

Rule 72 and to get rich in Real Estate!

At present there is no secret the real estate prices grew steadily and began to decline in most countries. Although these new May of bad news for people who had planned in their homes rise rapidly in price, lower price is good for those looking to invest in real estate.

In the coming years, many people will make money and bought the real crisis market products. Make big money in real estate is, of course, easier to said than done, but it is certainly not unprecedented.

The first step on the road to riches is to gain understanding of the theory tested, namely making money in real estate. The first step to obtain this knowledge is the understanding Rule of 72.

Rule 72

The rule of 72 helps us understand the effects of compounding periods long. Claims, compound interest will double the price of goods in the number of years of 72 divided by the interest rate Annual. For example, if you had $ 10,000 in the bank and get a six per cent per year, divide 72 by 6 to find out how long it would take $ 10,000 to $ 20,000 doubles.

The answer is of course 12. So if you were to invest in a very long period of time, for example, 36 years, their investment becomes $ 10,000 $ 20,000 in 12 years, $ 40,000 in 24 years, and $ 80,000 in 36 years.

It is common for real estate increased by 6 per cent per annum. In fact, a market relatively slow. The property prices will not always, but when there is a hot market, it is not unusual for the area extending from 20 to 30 percent in one year.

Because the market is not always hot, it is logical to use the Rule of 72 in calculating the enormous profits that 30 percent. The types of benefits are an aberration. However, since the '50s real estate has increased in some regions, averaging 8 per cent. For reasons of simplicity, however, lets use the figure of 7.2 percent.

If a commodity increases by 7.2 percent year, the rule of 72 tells us that its price will double every 10 years. 72 divided by 7.2 is 10. Thus, one can see that in the long term, it is wise to be invested in property at any time.

Leverage

Simply doubling your money every 10 years does not put on the fast track to wealth. To get on the fast track to wealth, must incorporate leverage. With leverage you control a lot of value, while only having invested a small amount money.

Here how to leverage works in real estate. If you are able to write 20 percent on a property 200.000 $, He invested $ 40,000. If the price of assets will double in the next 10 years that the rule of 72 tells us to go to an annual interest rate 7.2 per cent, the price of property worth $ 400.000 after the 10-year period. If you had been able to lease the property to their tenants to make monthly mortgage payments and pay their taxes and insurance, were $ 200,000 on his investment of $ 40,000.

This influence work because the rule of 72 should have doubled their $ 40,000, but in reality $ 200,000 due to the influence of your mortgage, combined the car has given him.

If your mortgage is being interest only mortgage, the property has never been paid, but your monthly payment would have been low enough that their tenants pay the mortgage each month without having to undergo a negative cash flow.

At this point, you could sell the property and awarded $ 200,000, less probably, $ 5,000 to $ 6,000 for expenses closure. In addition, you will also receive the original $ 40,000 deposit. Of course, as a real estate investor, your next step would be to use its $ 235,000 payment to the other properties.

You can see how a person can use the Rule of 72 and still use and again to become very rich. This is not an exotic scenario. It is a proven theory that has worked countless times.

For many people, the trick is to find the original payment he / she will need to start. Outside the Rule of 72 and a thorough understanding of the functioning leverage, knowing how to start with little or no money is the biggest key to success later in real estate investment. However, this will be the subject of another discussion.

About the Author

Ed Lathrop is a successful Real Estate investor. He has developed EzCalculator, a Mortgage Calculator that calculates anything to do with mortgages, shows you how to pay off credit card debt and now includes a free student loan calculator. This Free Mortgage Calculator, is home to the famous “How to Make $100,000 on Your Mortgage” calculator. Come visit this free site at Mortgage Calculator!

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