The concept of the doubling time of money has been applied by financial planners to the stock market for years. It is the Rule of 72 which states that whatever your return is divided by 72 is the amount of time it takes to double your money. Example: 12% return doubles in only six years. However, very few combine this with the concept of leverage which is borrowing money to enhance a return on investment. For example, 10% increase on a home that you put 10% down is a 100% return. If you put 20% then it would be a 50% return. $40,000 on a house that sells for $400,000 and it appreciates over a year or two to $444,000 then you have doubled your original investment.
Now, take a magazine for example. You probably understand that their selling costs are 6% and taxes 20%. Let’s take a look at what it really takes to net 10%. The house would really have to appreciate 16% so that is $464,000. You net $40,000, but the government takes $8000 of that so you need $8000 more or $472,000 to truly net 10%. Then you have doubled your money. How long does this appreciate take? Well it could be one year or five depending on how good a real estate investor you are.
Most people really have not put this into a financial plan to figure out how long it would take to get X number of dollars, while some financial planners will tell you, that you can’t be sure of the returns (which is true) but don’t let them fool you. You can’t be any more certain of their returns in the stock market.
I hope this has been helpful. Feel free to contact me if you have any questions.
Glenn Wilbor is President and owner of California Equities, a nationwide Wholesale Mortgage Company that has had a presence in the downtown San Diego area for more than a decade. Glenn and his company specialize in residential and commercial mortgage finance, real estate and development and have been instrumental in influencing the look of the San Diego skyline. For more information about California Equities, refinancing and development with Glenn or employment opportunities, please visit www.CaliforniaEquities.com or contact Glenn at glenn@CaliforniaEquities.com.
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