The Rule of 72 & Apartment Investing

Jumping right in, we’re going to see how this Rule of 72 applies not only to real estate in general, but to apartment investing.  Learn about the Rule of 72 before we move on.

Single-Family Rental.  Let’s look at a typical example for a single-family house you purchase as a rental.  Let’s say you purchased the property for $100,000.  After all expenses each month, you take in $200.  On an annual basis, that is $2,400.  Your cash-on-cash returns then would be 2.4%.  Employing our rule, we get:  72 / 2.4 or 30 years to double your money. 

Passive Apartment Investing.  Finally, let’s look at how the rule would apply to your passive investment in an apartment building.  Let’s estimate that you invest $100,000, the same amount as the single-family rental.  After all expenses are paid, you receive 5.9% cash-on-cash returns annually.  Calculating, we get:  72 / 5.9 or 12.2 years to double your money.

While our simple comparisons may lead one to believe that the stock market is the best one of the bunch, we are leaving out some critical differences between the first two examples and the real estate examples.  Real estate has the added pluses of mostly positive appreciation, tax benefits and principal pay down — not to mention a much less risky proposition than stocks. These benefits are magnified in the large commercial multifamily space and could benefit your bottom line, turning your 5.9% annual return into something averaging 10% or more over 5 to 10 years. 

Assuming that you selected the appropriate investment vehicle and collected a total return of 10% on average with your passive apartment investing, your rule would look more like this:  72 / 10 or 7.2 years to double your money.  Suddenly, investing in the safe and stable world of apartments without tenants and toilets to look after day-in and day-out looks much more attractive than the volatility and uncertainty of the stock market.