How can you take an advantage of real estate appreciation by using this rule?Einstein says “Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.”Question is which side of fence you are on; earning or paying?WHAT IS THE RULE OF 72? The rule is a simple method of estimating how long it will take compounding interest to double an investment.For example,If you invest $1 at 1% interest, I will take 72 years to double your moneyIf you invest $1 at 4% interest, it will take 18 years to double your money.Since I am a realtor, I studied the appreciation rate in bay area since 1984. On average, the homes appreciated 8.55% per year past 34 yearsAssuming you are buying 2 million dollar house in Palo Alto, based on rule of 72, how long will it take to double your money? $2million at 8.55% your money will double in 8.4 years. Remember, you are not investing the whole 2 million unless you are paying cash. You probably invest 20% of the purchase price and you get to live in your appreciating asset.
What does this mean?If you are a buyer who are on the fence whether you shoud buy a home or not,Ask yourself two questions,1. Do I like it enough to make an offer?2. Can I afford the payment?If both answers are yes, and you are negotiating the price, let’s say the gap between what seller wants and what you want to pay is $100K.Don’t let 100K stop you from getting what you want and an opportunity to double your money in 8.4 years.
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