Investors love to employ rules to help them predict outcomes. For example, there is a one percent rule (a one percent increase in interest rates equates to ten percent less you can borrow to keep the same payment) and a two percent rule (the percentage of a home’s cost that you should be asking for in monthly rent) and more. Some of these rules can help estimate potential results, but others are outdated or possibly never really held much value.
What Is the 69 Percent Rule?
The Rule of 69 is a simple calculation to estimate the time needed for an investment to double if you know the interest rate and if the interest is compound. For example, if a real estate investor can earn twenty percent on an investment, they divide 69 by the 20 percent return and add 0.35 to the result. In this example, the double in value would require 3.8 years.
For simplicity’s sake, many investors use the 72 rule instead because you can leave off the .35. Instead, you divide 72 by the rate of return. For example, if the return is ten percent, the Rule of 72 would suggest that the value of the investment will double in 7.2 years.
Do These Rules Make Sense?
These calculations provide a simple back-of-the-envelope formula to forecast doubling time if you invest in something with a fixed return. However, real life doesn't always follow simple recipes. For example, since the Rule of 69 percent relies on compounding, it may not be accurate. That’s because a lower appreciation early in the forecast period will continue to hold down the total gains by reducing the denominator. Here’s an example:
Suppose that Joe buys a property and expects a 20 percent return. The Rule of 69 states that the investment would double in 3.8 years. However, if values drop initially, the investment needs to catch up before the compounding can start to increase the value, which will lengthen the timeline.
Appreciation Isn’t Guaranteed
Whether a real estate investment grows in value quickly, slowly, or not at all depends on factors not within the investor's control. Overall economic conditions like inflation and unemployment are significant, as are supply and demand. As with any investment, there is a risk that value will drop rather than increase. Investors should examine their risk tolerance and appetite when deciding whether to purchase a specific property. "Rules" can help as shortcuts for estimating possible growth but can't substitute for due diligence or guarantee outcomes.
This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. Examples are hypothetical and for illustrative purposes only. Withdrawal strategies should take into account the investment objectives, financial situation and particular needs of the individual.
FAQs
The Rule of 69 is a simple calculation to estimate the time needed for an investment to double if you know the interest rate and if the interest is compound. For example, if a real estate investor can earn twenty percent on an investment, they divide 69 by the 20 percent return and add 0.35 to the result.
What is the rule of 69 in investing? ›
The Rule of 69 tells you how long it takes to double your money with different returns. 🚀 The formula is simple: 69 divided by your investment's annual return rate.
What is the rule of 69 proof? ›
The Rule of 69 states that when a quantity grows at a constant annual rate, it will roughly double in size after approximately 69 divided by the growth rate. The Rule of 69 is derived from the mathematical constant e, which is the base of the natural logarithm.
What is the rule of real estate investing? ›
How the One Percent Rule Works. This simple calculation multiplies the purchase price of the property plus any necessary repairs by 1%. The result is a base level of monthly rent. It's also compared to the potential monthly mortgage payment to give the owner a better understanding of the property's monthly cash flow.
What does the rule of 69 predict? ›
It's used to calculate the doubling time or growth rate of investment or business metrics. This helps accountants to predict how long it will take for a value to double. The rule of 69 is simple: divide 69 by the growth rate percentage. It will then tell you how many periods it'll take for the value to double.
What is Rule 69 and Rule 72? ›
Rules of 72, 69.3, and 69
The Rule of 72 states that by dividing 72 by the annual interest rate, you can estimate the number of years required for an investment to double. ● The Rule of 69.3 is a more accurate formula for higher interest rates and is calculated by dividing 69.3 by the interest rate.
What is the doubling rule of 69? ›
The Rule of 69 is a simple calculation to estimate the time needed for an investment to double if you know the interest rate and if the interest is compound. For example, if a real estate investor can earn twenty percent on an investment, they divide 69 by the 20 percent return and add 0.35 to the result.
What is the Rule of 72 in finance? ›
The Rule of 72 is a calculation that estimates the number of years it takes to double your money at a specified rate of return. If, for example, your account earns 4 percent, divide 72 by 4 to get the number of years it will take for your money to double. In this case, 18 years.
What is the rule of 73? ›
Lower or higher rates outside of this range can be better predicted using an adjusted Rule of 71, 73 or 74, depending on how far they fall below or above the range. You generally add one to 72 for every three percentage point increase. So, a 15% rate of return would mean you use the Rule of 73.
What is the golden rule in real estate? ›
In November, Corcoran appeared on the BiggerPockets Real Estate Podcast with her son Tom Higgins to describe two methods she says make up her “golden rule” of real estate investing: putting down 20% on an investment property and having tenants of that property paying for the mortgage.
Basically, the rule says real estate investors should pay no more than 70% of a property's after-repair value (ARV) minus the cost of the repairs necessary to renovate the home. The ARV of a property is the amount a home could sell for after flippers renovate it.
What is the 80 20 rule in real estate investing? ›
What is the 80/20 Rule exactly? It's the idea that 80% of outcomes are driven from 20% of the input or effort in any given situation. What does this mean for a real estate professional? Making more money in real estate is directly tied to focusing your personal energy on the most high value areas of your business.
What is the rule of 70 in the stock market? ›
The rule of 70 is used to determine the number of years it takes for a variable to double by dividing the number 70 by the variable's growth rate. The rule of 70 is generally used to determine how long it would take for an investment to double given the annual rate of return.
What does the Rule of 72 tell you? ›
Do you know the Rule of 72? It's an easy way to calculate just how long it's going to take for your money to double. Just take the number 72 and divide it by the interest rate you hope to earn. That number gives you the approximate number of years it will take for your investment to double.
What is the rule of 69 vs 70 vs 72? ›
According to the rule of 72, you'll double your money in 24 years (72 / 3 = 24). According to the rule of 70, you'll double your money in about 23.3 years (70 / 3 = 23.3). But, the rule of 69 says that you'll double your money in 23 years (69 / 3 = 23).
What is the 70% rule investing? ›
Basically, the rule says real estate investors should pay no more than 70% of a property's after-repair value (ARV) minus the cost of the repairs necessary to renovate the home. The ARV of a property is the amount a home could sell for after flippers renovate it.
