This article is part of our guide on how to invest 1 million dollars for income, available here.
The market data tells us that putting your money to work is not something that you should do; instead, it’s something that you must make your priority and your duty as the custodian of your capital. The purchasing power of your dollar is slowly being eroded largely due to high inflation. You need to hedge against this threat by getting a larger annual rate of return than what the dollar is being devalued at.
Have you ever heard that Einstein quote? “Compound interest is the eighth wonder of the world. He who understands it earns it … he who doesn’t … pays it.” – Albert Einstein. This rings true with many investors as they recognize compound interest to be a very powerful tool that can be used to double up their money and build true wealth as they conduct their retirement planning.
The Rule of 72 is the simple formula that breaks this down, and we’ll dive deeper into it in the next section. Investing in multifamily real estate syndication mirrors the Rule of 72.
The value-add multifamily apartment game is based on finding ways to add value through operational or physical improvements and increase value. Investing in cash-flowing real estate assets like apartments provides a solid risk-adjusted return to double your initial investment every 5-7 years.
In this guide, we’ll discuss how syndication can be an excellent vehicle for achieving this and what different annual interest rates of return it would take to double your money and grow your retirement account or savings account.
What is the rule of 72?
The Rule of 72 calculates how long it will take to double your money. The analysis can determine how long it would take to double your money at specific annual rates of returns. This is very useful because now you can create scenarios around the financial goals you are looking to achieve and plug in the numbers to determine how long it would take and at what rate.
For example, earning a 10% average annual rate of return would mean that your money doubles every 7.2 years. Investments double every seven years, allowing you to grow your capital at a solid rate.
(72 / 10% Rate of Return = 7.2 Years)
How long to double money at 7 percent?
You would do the following to find out how long it takes to double your money at a 7% annual rate of return. For example, if you could earn a 7% annual rate of return, it would take 10.2 years to double your money.
(72 / 7% Rate of Return = 10.2 Years)
How long to double money at 8 percent?
You would do the following to find out how long it takes to double your money at an 8% annual rate of return. For example, if you could earn an 8% annual rate of return, it would take nine years to double your money.
(72 / 8% Rate of Return = 9 Years)
What interest rate would double your money in 5 years?
For example, if you wanted to double your money every five years, you would need to have a 14.4% annual rate of return.
(72 / 5 Years = 14.4% Annual Rate of Return)
Double money every 7 years
For example, if you wanted to double your money every seven years, you would need a 10.2% annual rate of return.
(72 / 7 Years = 10.2% Annual Rate of Return)
Rule of 72 Calculator
Below is a rule of 72 calculator. Simply click the “Find Time” or “Find Rate” button and input the desired numbers to apply the rule of 72 formula.
How can I double my money in 5 years?
Finding a solid risk-adjusted investment vehicle that would enable you to double your money every five years is far few, but they do exist. Many opportunities that would allow you to get annualized returns in the mid to high teens may be more speculative. Multifamily apartment communities are a great example of achieving average annualized returns in the mid-teens. These return hurdles can be met all while investing in low-risk, hard assets throughout a 5-7 year property hold.
Limitations of the rule of 72
If you hold on to it for a more extended period, you’ll have more opportunities in the mean. Although these averages may be correct in theory, they frequently change more than they should over a short time frame and are not very predictable—the higher the investment rate, the more volatile the money.
The rule of 72 may help you make fast and simple calculations that can assist you in setting goals and beginning your financial planning process. You may conclude that this is just the beginning. However, you may take it a step further by doing more thorough planning.
Pros of the 72 rule
The Rule of 72 may help you determine which asset classes you’ll have to invest in to meet your objective. Like how you’re going to take your $1000,000 and have it grow to $200,000 in 5 years. All you need is some loose paper and a few simple math concepts. You can get creative with it and map out what you’d need to save $50,000 for your kid’s education 15 years from now. You can even use the Rule of 72 to determine how much money you’ll make over time.
The Rule of 72 provides a baseline for predicting how much college will cost in the next 15 years if tuition rates rise at an annual rate of 4%. It may also assist you in saving for retirement, such as by investing in recession-resilient asset classes like multifamily real estate, which can be done via a real estate syndication.
It’s also worth noting that making your investment from a self-directed IRA could also further enhance your ability to grow your capital through being able to re-invest pre-tax. That, of course, depends on how you structure your IRA.
Frequently Asked Questions About What Interest Rate Would Double Your Money In 5 Years
The rule of 72 in investing is a calculation of how long it would take to double your money. For example, let’s say I invested $100,000 into multifamily real estate syndication, earning me a rate of return of 7% every year on my $100,0000. That would mean it would take me 10.2 years to double my $100,000 (72/7=10.2 Years).
You need an annual return of 7.2% to double your money in 10 years. The calculation to determine what rate of return you would need to receive on an annual basis would be (72/10 Years=7.2% Annual Rate of Return).
It would take 12 years to double your money at 6%. You would do the following calculation to find out how many years it would take (72/6=12 Years).
It would take eight years to double your money at 9%. You would do the following analysis to determine how many years it would take (72/9=8 Years).
Doubling your money in a year is not an easy feat, and if possible, it would likely come with some level of risk due to its very high reward. There are an array of investment vehicles that are speculative where you may achieve this level of return in such a short hold period, such as investment in stocks or cryptocurrencies. Commercial real estate investing and multifamily as an asset classallowsw investors to double their money every 5-7 years while having a significant tax shelter to those earnings, unlike in stocks and cryptocurrencies.
Yes, doubling your money in real estate is a very common return hurdle, depending on what time horizon you have set up to double up your dollars. Multifamily real estate syndication is generally held for 5-7 years, depending on the syndicator, but these deals are sometimes sold as early as years 1-3. In the hold mentioned above period of the deal, the expectation is that investors will be able to double up their invested capital cumulative of the deal’s annual cashflows, refinance proceeds, and sale proceeds.
Doubling your money every 5-7 years through Multi Family Syndication - Conclusion
Multifamily real estate syndications are a great way to get exposure to deals and put your money to work without all the headaches of the ongoing day-to-day property management and asset management. What also makes direct investments into a private placement real estate syndication more advantageous, especially when looking at past performance compared to other investment vehicles like the stock market and REITS, is the tax advantages. Having direct ownership in the project you get as a limited partner or passive investor in a deal enables you to get all the benefits of depreciation that you don’t get in stocks and REITs. Tax sheltering your passive income enables you to keep more and therefore allows you to reinvest more and cycle more money.
The general idea for multifamily real estate syndications is to hold for 3-10 years; here at Willowdale Equity, we typically aim to hold on to a property for 5-7 years. We are generally acquiring value-add properties that require us to come in and renovate all or a good majority of the exteriors and interiors. And As a result, increasing the value, we sell the asset to capture all the equity we created. Our business plan will also include optimizing operations and increasing the net operating income (NOI).
Throughout the course of a hold, you’ll receive the cash flow, and on the sale, you’ll receive your share of the gross proceeds. The goal is to continue reinvesting your initial principal investment and profits from deal #1 and then roll them over into deal #2, deal #3, and so on to continue doubling up your bank account. Trust me when I say that compound interest works; the total return projections are anywhere from 1.5x to 2x plus a multiple of your initial cash investment.
📈 Increase in Value After 15 Months – 80%
📈 Increase in Value After 21 Months – 119%
📈 Return of Investors Capital on Refinance – 62.5%