The Rule of 72

Everyone wants to double their money.  One of the first things most people think about when they think about investing their dollars is how soon their money will double.  I’m certainly not sure why that is. Why don’t we first think about quadrupling our money or making ten times our money?  Maybe one of the reasons is because we don’t have a rule-of-thumb tool like the Rule of 72.

The Rule of 72 is really straight-forward and easy to understand.  We refer to the Rule of 72 frequently when discussing projected outcomes of particular apartment investments with our investor-Partners and we use it as a back-of-the-napkin estimating tool when doing initial number-crunching.  Here’s a fun video that explains how it works in case you need a refresher:

Estimating how quickly you could double your money investing in commercial multifamily projects and comparing the outcome of this investment against other investing alternatives becomes quite easy to do with this rule.

Savings Accounts.  As of this writing, the approximate annual interest paid on savings accounts is 1.0%.  This interest rate makes using the Rule of 72 quite easy:  72 / 1 = 72 years to double your money.

The Stock Market.  The compound annual growth rate of the S&P from 1871 through 2014 is 6.91%.  Using our handy-dandy rule, we get:  72 / 6.91 = 10.4 years to double your money.

In the next post, we’ll examine how the Rule of 72 is applied to real estate and the apartment investing specifically.

 

5 Steps to Buying a Multifamily Property

A typical multifamily property involves a residential unit (condo or apartment complex) designed for one or more families. With the influx of immigrants, Echo Boomers and their parents, namely Baby Boomers, the demand for multifamily properties (particularly apartments and condos) is at an all-time high.

Investment in multifamily properties offers high returns with minimum risk exposure. It is one of the most secure investments, particularly for self-directed IRAs and/or other 401(K) Plans. 

Choosing and buying multifamily properties, however, can be challenging. Since multifamily investments are comparitvely new, compared to stock trading, there aren’t many guidelines available for a prudent investor to buy the most high-yielding and lucrative multifamily properties.At Waypoint Property Group, we recommend the following five steps for buying a multifamily property:

Real estate investments, Real estate investing, cash-flow, Apartment investing, asset management, Alternative investments

Step 1: Conduct a Market Survey

Some multifamily properties offer higher returns than others. For instance, the real estate business in Chicago, San Francisco and Seattle is booming and rents are at an all-time high. This means that $1 investment in a multifamily investment can earn up to a $5 return. However, investment in Detroit’s multifamily properties can be onerous. Hence, it is always necessary to identify lucrative multifamily properties beforehand.

Step 2:  Arrange Your Finances

Once the target market is identified, the next step is to evaluate your finances. If you’re planning to invest IRA in multifamily properties, evaluate the amount accumulated in your retirement funds and the amount required for the initial investment. Consider all sources on how to finance the difference between the two amounts (deficit financing through bank loans). Similarly, if you’re managing a Roth IRA, you might need to convert it in to a self-directed IRA for the purpose of multifamily investments.

Step 3: Find the Best Asset Managers

Multifamily investments can be complicated to manage. Economic conditions are changing and every fiscal year brings one city/county or another to the verge of bankruptcy. This impairs your multifamily investments in that particular city.

With the help of qualified and experienced multifamily asset managers, your investments are always in safe hands and you can expect stable returns with a linear increment every year. Furthermore, your financing options are also evaluated before you proceed to invest. Click here to find out more on one of the leading multifamily property investment groups.

Step 4: Choose the Best Property

Multifamily properties consist of houses, condos, apartments and several other home dwellings. Each category offers varying returns based on their locality, size and consumer preferences. For instance, the median home price in New Jersey is significantly lower than the price of an apartment in Manhattan. Make sure to discuss with your asset manager the different classes of multifamily properties, the projected returns and expected increase in tenancy and rental rates.

Step 5: Finalize the Deal

Once you have successfully followed the first four steps, the last step involves finalizing the investment deal. Once again, it is recommended that you read the contract carefully and discuss with the propriety group on how your investment will be safe from market and pricing fluctuations.

Finalizing the deal also involves long-term investment planning and investment switch- a process through which you can shift your investment from a low-yielding to a high-yielding multifamily market without losing out much.

To learn more on the best ways to secure investments in a multifamily property and maximize your returns, visit Waypoint Property Group.