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What is the Rule of 72 in real estate? Assess how long your rental investment might take to double in value with this simple shortcut formula as a guide

Understanding Rule of 72 for Rental Property Calculations

When you’re crunching numbers on your rental home, there are a lot of ‘rules’ and shortcuts that can help determine the value of your investment. The ‘Rule of 72’ is one of them, which we’re going to cover in this explainer. 

The Rule of 72 is a simple formula that is used to estimate the time it takes for an investment to double in value, based on a fixed annual rate of return. It is more commonly used to determine compound interest, but it can be used in real estate too. 

How to apply the Rule of 72 to a rental property:

While rental returns can fluctuate and change depending on things like expenses, debt and vacancies, start with a cash flow analysis to determine the average annual rate of return you expect to earn from your rental home from income. This can also include factors that add to your overall profit such as property appreciation and tax benefits. It should be a single number without any decimal places, such as 8%. 

Once you have an estimated rate of return, divide 72 by this number. The result will be the number of years it takes for your investment to double in value.

For example, if you expect an annual rate of return of 8% from your real estate investment:

According to the Rule of 72, it would take approximately 9 years for your investment in real estate to double in value, assuming an 8% annual return. If your annual return was 3%, that number would increase to 24 years. The Rule of 72 is a simplified estimate and may not be perfectly accurate, but it can provide a quick and easy way to consider potential growth of an investment or rental property. 

The Rule of 72 is typically used for interest rates and has limitations that rental homeowners should be aware of. For starters, this simple formula works best when your annual rate of return sits between 6 - 10%. If it exceeds 15%, it will no longer provide an accurate estimate.   

There is also a “Rule of 69.3”, which is used in the same way by replacing 72 with 69.3. In most cases the Rule of 72 is more easily divisible and understood, however the Rule of 69.3 may be more accurate. 

Of course, the biggest drawback of this calculation is that it assumes your annual rate of return won’t change. In reality, the appreciation of your home is subject to current market conditions — as is the amount you can charge for rent. There’s also the condition of your home and the potential for expenses to fluctuate or vacancies to occur.

Ultimately, the Rule of 72 only provides an estimate, and rental property owners should consider other financial metrics when they make investment decisions. 

How does the Rule of 72 apply to rental homes?

The Rule of 72 is best used as an estimating tool in evaluating potential investment properties. You can also use it to estimate the return on your investment for your current rental property.  

For example, suppose you have a real estate investment property valued at $100,000, and that property has an 8% annual return. In that case, you can estimate that your initial investment will take nine years to reach $200,000. 

This could be useful when comparing two homes or planning for the growth of your investment portfolio. If you’re planning to invest in capital improvements, you may also look at how quickly you could expect to make your money back by projecting your predicted rate of return. 

Recent years have seen high rates of inflation, which can also impact your purchasing power. If for example, the inflation rate is around 8% (as it was in 2022), dividing 72 by the rate of inflation shows that in 9 years, the purchasing power of your money will be reduced by 50%. This could help make decisions about when to buy as the cost of living increases. Again, not a perfect calculation however as inflation fluctuates and is not always as high as recent years. 

Simplify how your rental home makes money 

Simple math is one thing, but Belong prefers to simplify the entire renting experience. Whether you’re new to the real estate investing game, dealing with a problematic property management company or burnt out chasing rent every month, Belong can help.  

Our smarter, future-ready services include:

Guaranteed rent every month, regardless of if or when your residents pay

Optimized rental pricing that uses technology and real-time demand to price your home with accuracy

The Belong app that gives you and your residents access to everything you need

Innovative financial products including the option to spread maintenance payments over the term of your lease agreement

Access to dedicated landlords insurance to protect your asset (as well as coverage for your residents)

Integration with the most popular rental platforms to get your home loved faster

Instant access to an expansive vendor network of over 10,000 professionals that can handle everything from routine repairs to home upgrades

…and we’re just getting started! Belong is simplifying the rental experience across the US and helping more homeowners reach their financial goals with the most hassle-free property management service; Belong PRO.

Disclaimer: It’s important to consult with a professional and consider your personal circumstances before making any decision on finances or investments. This article provides a simple formula to a complex calculation and should not be considered financial advice. 

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Short-term rental vs long-term rental - which is a better investment? Compare the differences to decide if owning a short-term rental is the right fit for you.

Is Owning a Short-Term Rental Property Really More Lucrative? How To Decide

Are short-term rental properties a good investment? It depends on a lot of factors, so before deciding if owning a short-term rental is right for your situation, you need to consider the real cost — including time, effort and money. You should also compare and consider whether you may be better off with a long-term rental that offers stable income, tax benefits, and less wear-and-tear on your home.  

With a higher per-night rate short-term rental properties can be a profitable investment, but finances are likely to vary significantly. Especially in this macro environment, where scores of short-term property owners are reporting increased vacancy rates. Additionally, the payday that can come from a popular vacation rental becomes a lot less attractive when you factor in the number of hours you’ll spend working as a frontline customer service agent for your own property. 

Owning a short-term rental might be best for you if you intend to use the property for part of the year, or if you’re looking for a higher risk and reward opportunity. In the right location, short-term rentals can be very lucrative, but becoming a ‘host’ rather than a ‘landlord’ comes with considerable challenges — including the ethical implications of removing housing options from those who are currently priced out of homeownership. 

A Bloomberg report revealed that AirBnb spends millions of dollars annually to make “nightmares” go away for guests and hosts alike. Meanwhile, local governments are fighting back against short-term rentals, which reduce the amount of available housing for full-time residents and raise rent and home prices for everyone. 

Owning a long-term rental might be better for you if you want to earn passive income, take advantage of tax strategies, and prefer a long-term investment vehicle that requires less of your time and energy. If you don’t plan to sell a property immediately, long-term rentals can offer a good return on your investment.

To help weigh up your options, in this article we dive a bit deeper into short-term rentals and what’s really involved in using your home for this purpose. 

What is a short-term rental property investment? 

A short-term rental is a residential home or investment property you rent daily, weekly, or monthly. Also known as a vacation rental, short-term rentals are typically listed on shared economy sites like VRBO, HomeAway, and Airbnb. This is a great option for people who live in their home while renting out a room, or for people who use their home for part of the year — renting the entire house for vacationers when they’re away. 

This differs from a long-term rental property, which is rented to a single person/couple/family for a fixed-term on a lease agreement. This is ideal for investment properties, with homeowners benefiting from the stability of having the same residents for 12-months or more. A long-term rental is also significantly less work than managing a short-term rental — helping to achieve truly passive income if managed well. 

Is it legal to use an investment property for short-term vacation rental?

Before deciding what to do with your investment property, it’s important to note that some cities either restrict or ban short-term rentals for investment homes. Residential homes that are shared are great for vacation rentals, but every investment home used for this purpose makes one less home available to local residents looking for somewhere to live. Many states and counties are intervening and introducing short-term rental ordinances and licensing fees to restrict the number of investment homes used as short-term rentals. You will need to apply for and pay for a permit to operate a short-term rental property in most states in the US. 

In California, for example, there is a new Short-Term Rental Ordinance (STRO) in San Diego that caps the total number of short-term rental properties to 1% of the city’s total housing. In Los Angeles, it’s illegal to put an investment property on the short-term market, with licenses only granted to homeowners who live in the property for at least six months of the year. 

Are short-term rental properties a good investment? 

Whether a short-term rental property is a good investment will depend largely on your financial situation, your ability to invest the time and money into managing the high turnover of guests in the property, and the location of the home. There’s also the ethical consideration of removing a home from the rental market when homeownership is out of reach for a growing cohort of Americans. 

As with any real estate investment, carefully calculate your expenses and potential cash flow. You will also need to evaluate each property to determine if it is suitable for a short-term rental. 

There are unique costs associated with short-term rental investments. Outside of the initial investment of acquiring the home, ongoing short-term rental expenses include:

Listing, marketing, and administrative costs 

Cleaning and preparing the home for every guest

Laundering all bed linen and towels for every guest

More regular maintenance to the property and furnishings

Landscape maintenance if you have a yard or garden beds

Utilities such as electricity, gas and water

Transient Occupancy Taxes and state licensing fees where applicable

Regular supplies and stock of essential items like toilet paper, soaps, shampoos and basic kitchen ingredients

There’s also the time and energy cost. As a host, you will be responsible for customer service associated with your short-term rental. Customer service responsibilities will require you to communicate with potential and current guests promptly and professionally. You will also need to respond to questions or emergencies whenever they arise. You should expect much of this communication to occur in the evenings and on weekends. 

Managing a short-term rental investment property often includes additional responsibilities, some of which you must complete more frequently.  Administrative tasks will include, but are not limited to:

Maintain and update the short-term rental listings on sites like VRBO, HomeAway, and Airbnb

Market the property, arrange for photography, request guest reviews  



Manage bookings and update availability across platforms 



Record keeping tasks which will include finances, bills, taxes, payroll, or vendor management 

Arrange for cleaning and maintenance between every guest

If you can identify and hire the right professionals, you may delegate some of these tasks to others. Engaging a team of professionals will allow you to focus more of your time on managing those partners and solving problems as they arise. It might be worth checking out what other Airbnb hosts are saying about their experience before opening your home as a vacation rental. 

How owning a short-term rental differs from owning a long-term rental property 

Owning a short-term vacation rental can differ significantly from investing in long-term real estate properties for lease on the rental market. Carefully compare the two to decide which type of real estate investment property is best for you. 

With work and dedication, short-term rental investments can be very lucrative. Many short-term rental owners report significant earnings, even if their property is not leased for the entire year. Achieving success requires careful planning and calculations because your property will not have long-term tenants — and your ongoing costs and maintenance will be higher. The cash flow and incomes from a short-term rental property are highly variable, making it more difficult to budget and plan expenses. 

In contrast, long-term rental properties have fewer operating costs and long-term tenants. While a long-term rental may not be able to command the same nightly rate as a short-term rental, finances will be more stable and easier to predict. If your home is with Belong, you can even receive guaranteed rent and manage your cash-flow with financing options for any expenses including maintenance. 

Tax implications and strategies for real estate investments 

Are short-term rental properties a good investment? Short-term rental vs long-term rental, compare the differences to decide the right fit for you.

Is Owning a Short-Term Rental Property Really More Lucrative?

Get Guaranteed Rent For Your Long-Term Rental

What are the financing options for investment properties? Learn more about conventional loans, hard money and home equity options for buying a rental home.

2023 Guide to Financing Options That Help Your Rental Home Cashflow

Not all debt is bad. The right debt has the potential to increase your wealth long-term — like a mortgage or using the equity in your home as a down payment on a rental investment home. The right finance can also help you maximize your cash flow and appreciation of the home by funding renovations and sought-after amenities. 

But before you start shopping for loans, it’s a good idea to get up to speed on your options. 

For instance, did you know that most banks don’t offer conventional bank mortgages for second or investment homes but instead offer a specific investment property loan? Or that you can’t access government-insured loans to buy a rental property unless you are an owner-occupier within the duplex/multifamily complex? The use of the home plays a role in applying for finance, so consider speaking to a broker about your intentions and options. 

The main goal is to ensure your rental home can achieve positive cash flow. This means keeping repayments, interest rates, and ongoing costs below what you can earn in rental income. It could also mean borrowing money to fund improvements that will yield more rental income and make the home more profitable in the long-term.

This article covers the following FAQs on rental home financing:

Can I get a conventional loan to finance a rental property?

What is a jumbo loan and do I need one for a rental home?

Can I finance a rental property with an FHA loan or special program loan?

Are Hard Money or Bridge Loans a good idea to finance an investment home?

Can I use the equity in my home to finance a down payment for an investment property?

Mortgage loans fall into three main categories; Conventional loans, FHA loans and special programs. Conventional loans simply describe any type of loan that isn’t government-insured, like a standard mortgage from a bank or credit union lender. 

Some lenders may provide a conventional home loan for a rental home or investment property, but most won’t take rental income into consideration for a standard mortgage loan. Instead, they will ask existing homeowners to apply for a specific ‘investment property loan’ to finance a second home they won’t live in. This will have different requirements, such as a stronger credit score and down payment. 

Requirements for an investment property loan include:

In some counties, the cost of housing exceeds the limits of the Federal Housing Finance Agency (FHFA) limits. In 2023, the limit for bank loans on single-unit properties is $726,200 for most areas and up to $1,089,300 for high-cost areas like San Francisco County. 

Jumbo loans allow you to borrow a higher amount to finance in a pricier area or to buy a larger home. They will have different lending requirements and may need you to have a higher income, credit score and down payment. 

FHA and government-backed loan programs are only available to owner-occupied properties. If you’re looking to access one of these loans to finance a rental home, you will also need to live on site. That means if you purchase a duplex or multifamily complex with a view to live in one of the housing units, you could qualify for an owner-occupier loan while also earning rental income. 

Hard Money (or ‘Bridge Loans’) offer more flexible terms and can be approved more quickly than conventional mortgages. Because of this flexibility, they are preferred as short-term finance options for real estate investors, for example when investing in a home to renovate quickly and ‘flip’ for profit. 

Private lenders have lower credit score thresholds and determine the property’s potential value to decide if they will loan the money. The downside is that they have higher interest rates, high fees and closing costs. 

If you’re looking for a long-term investment solution or want to renovate a property to put on the rental market and appreciate over time, hard money loans aren’t the right solution for you. They’re also not ideal for anyone financing their first rental home. 

Home equity is the difference between what your home is worth and how much debt is owed against it. When your house appreciates and/or you have paid off a chunk of your mortgage principal — you have equity. This value can be drawn from to finance a down payment for another property which can be used on the rental market to help pay down the loan. 

Once you own at least 15% - 20% of your home’s value, you may be eligible for:

Another type of equity loan is the reverse mortgage or Home Equity Conversion Mortgage (HECM) for Purchase, available to homeowners over the age of 62. We have not detailed this as a financing option because it’s only available to owner-occupiers and a reverse mortgage can be canceled if you leave the premises and rent it out.

A cash-out loan refinancing involves taking out a new mortgage on your home for more than what you currently owe — receiving the difference in cash. You can use the cash-out refinance funds as a down payment on a new investment property or buy the property outright. 

This could be especially helpful if you need to pay out an existing mortgage or buy out siblings to gain full ownership of an inherited home. 

The amount of money or equity you can cash out will depend on the current value of your home and your current loan balance. You will need more than 30% equity to cash out, and you can borrow up to 80% of your home equity. Consider that a cash-out refinance means you will have new loan terms and incur closing costs and fees. These will need to be factored into your rental cash flow analysis. 

A Home Equity Loan allows you to borrow against the value of your home, with the money delivered as a lump sum. Home equity loans have a fixed interest rate and set monthly payments. These loans are ideal for major renovations and investing to improve the value of the home. They can also be used to build an investment portfolio. 

There is one key drawback to consider if you choose a home equity loan. If your home decreases in value, you could end up underwater on the loans, which would be that you can’t move or sell your home without paying money to your lender. If that risk is acceptable to you, a home equity loan can be a good financing option for an investment property. 

A Home Equity Line of Credit or HELOC allows you to draw funds as needed and repay the money at a variable interest rate. Some real estate investors use the equity in one rental home to finance another and grow their portfolio. But more commonly, owners of rental property use a HELOC to finance capital improvements or renovations, improving the market value of their home to maximize their rental income and appreciation opportunities.

HELOCs offer flexibility in your budget over taking out a specific loan amount. For example, you don’t need to borrow and pay interest on $50,000 if you only end up spending $40,000 (and you don’t need to find more funds quickly if you go over budget). 

This flexibility could have a big impact on your cash flow by keeping repayments to a minimum. It’s worth noting that the full amount that you’re eligible to borrow will be considered under your debt-to-income ratio, even if you don’t use the full amount. 

Belong offers innovative financial solutions to homeowners

Belong partners with homeowners to make sure your rental home is achieving the best possible price and is cared for by great residents — without you having to lift a finger. From finding long-term residents to financing solutions, we’ve got you covered. 

For Belong homeowners who face unexpected costs, you’ll be eligible for our innovative financial solutions such as ‘Split It’. Split It lets you finance costs like renovations and repairs, with repayments spread across the term of your resident’s lease. With guaranteed rent in place, you’ll never have to worry about gaps in your rental income or missing finance repayments. 

Learn more and find out if your home is eligible here. 

Read up on the pros and cons of buying a foreclosed property as a real estate investment.

Should I Buy A Foreclosed Home? Pros And Cons

You can find foreclosed homes in nearly every real estate market in the country, and buying a foreclosed home has become easier following the mid-2000s mortgage crisis. After the moratorium on foreclosures, in response to the COVID-19 pandemic, ended in July 2021, investors expected an increase in foreclosure. However, we’re still seeing a limited supply and significant competition. The greatest incentive in purchasing a foreclosed home is costs, but unpredictable timelines, repairs, and stiff competition may deter you from buying a foreclosed home. 

What your need to know about buying a foreclosed home 

There are several types of foreclosures: pre-foreclosure, short sale, sheriff’s sale, bank-owned, and government-owned. Every kind of foreclosure has unique characteristics, and the purchase process varies. Consider choosing a real estate agent who is familiar with the foreclosure process. They’ll be able to provide you with specific insight based on their experiences. 

When an owner can no longer make payments on their mortgage, the bank takes possession of the home. The bank usually sends a notice of default after 90 days of missed payments. Often, the homeowner has the opportunity to arrange for a new payment plan with the bank before the home is sold. If you’re buying a foreclosed home, you are purchasing the home from the bank, not the home's original owner.

Pre-foreclosure: Once the owner is in default on their mortgage, they are notified by the bank. If the homeowner can sell the property during the pre-foreclosure period, they can avoid the foreclosure process and some of the impacts on their credit history. 

Short sales: If a homeowner is enduring financial hardship, they may be able to sell their home in a short sale. The lender has to agree to accept less for the property than what the homeowner currently owes on their mortgage. Short sales can be lengthy because the bank has to respond and approve the deal. 

Sheriff’s sale: Sheriff’s sales are auctions held after homeowners default on their loans. These auctions are facilitated by local law enforcement, hence the name sheriff’s sale. In these auctions, the home is sold to the highest bidder. 

Bank-owned properties: If a home does not sell at auction, it becomes a real estate owner (REO) property. The mortgage lender, bank, or mortgage investor owns the property, and these types of properties are sometimes also called “bank-owned” homes.

Government-owned properties: Similar to REO properties, this type of home was initially purchased using an FHA or VA loan, both government-back loans. When these properties are foreclosed and do not sell at auction, they become government-owner properties. Then, they are sold by brokers who work on behalf of the agency which issued the mortgage. 

While all cash offers will provide your most significant advantage when buying a foreclosed home, various financing options are available for investment properties. Keep in mind that private lenders may be less inclined to finance the purchase of a foreclosed home. To expedite the process, consider choosing a lender and getting pre-approved for a mortgage loan. 

If you are interested in purchasing a foreclosure, we recommend exploring the government-sponsored financing options available to those who qualify. A 203(k) loan is a type of financing provided by the Federal Housing Administration (FHA). There are several different types of 203(k) loans. You’ll generally be charged a mortgage insurance premium to offset the bank’s risk. You will also find the interest rates for these types of loans are about 0.25% higher than conventional loans. 

The HomePath ReadyBuyer program is offered by the Federal National Mortgage Association (FNMA), or Fannie Mae, and primarily targets first-time home buyers. After participating in an educational course, homebuyers are eligible for closing cost assistance and other benefits. 

Finally, the HomeSteps program may be a good option if you live in one of the following states: Alabama, Florida, Georgia, Illinois, Kentucky, North Carolina, South Carolina, Tennessee, Texas, and Virginia. This program, which Freddie Mac facilitates, only requires 5-10% down and does not require mortgage insurance. You’ll need to find a HomeSteps eligible property to use this program. 

While buying a foreclosed home may offer a unique opportunity, it’s critical to understand the potential drawbacks so you can make an informed decision and confidently move forward.

Lengthy process with additional paperwork 

Foreclosures present a lot of complications, and with those complexities comes additional paperwork and processes. While banks are eager to sell their properties, their processes and response times can quickly become frustrating. If the bank has a backlog of foreclosed properties, its response times can exceed several weeks or months. 

Unlike other types of homes, foreclosed homes are sold “as is.” The buyer is responsible for any damage, repairs, or maintenance that may be needed on the house. This can include repairs that may not be immediately obvious. In the case of a foreclosed property, the seller will make no upgrades or improvements. However, sellers do have an obligation to disclose the existence of lead paint. In some places, sellers may be required to disclose past structural defects, a history of flooding, or infestation. 

Since these homes are sold “as is,” you should expect them to need repairs and updates. Depending on the home in question, these repairs may be costly, especially if they are unexpected. It’s highly recommended that you complete a house inspection during the home buying process to understand what repairs will be needed. 

While rare, you may also experience vandalism, especially if the property has been vacant for an extended period. In some cases, previous owners may intentionally inflict damage or remove items of value from the home. 

Real estate investors and professional house flippers are familiar and well-versed in buying foreclosed homes. They’ve made buying foreclosed properties their entire business, and you can expect them to be discerning buyers. Foreclosed homes with the most opportunity will often attract several bidders. The competition for foreclosed homes has only increased in recent years thanks to the foreclosure moratorium issued in response to the COVID-19 pandemic. 

Once you understand the potential pitfalls of purchasing a foreclosed home, you can weigh any concerns against the unique investment opportunity this kind of purchase offers. 

The most significant benefit of purchasing a foreclosed home is the price. Foreclosed homes are typically sold for less than other comparable homes in the same area. For pre-foreclosures or short sales, the owner has limited time to sell the property. They’re often willing to accept less than the home's current market value. For other types of foreclosures, it’s helpful to understand that banks, local law enforcement, and government agencies are not in the business of selling real estate. It’s often in their best interest to sell any real estate they acquire quickly and efficiently. 

In some cases, you may be offered additional incentives outside of price. Some sellers may offer a reduced down payment, lower interest rates, and a reduction or elimination of appraisal fees or closing costs. 

Purchasing foreclosed homes can be a smart way of acquiring lower-cost real estate and adding to your real estate investment portfolio. If you plan to rent the home and you have the funds to make any required repairs or updates, you may be able to establish a cash flow-positive rental property. 

Make smart real estate investments in partnership with Belong 

Once you’ve purchased and financed your investment property, you can consider how you will manage and maintain your new investment. Belong is a modern alternative to the property management companies of the past. We help increase your returns and price your property for maximum cash flow. When the time comes to find residents for your investment property, we attract, screen, and retain residents who will value your new property as much as you do.

Learn more and calculate how Belong can support your real estate investment strategy.

Should you buy a foreclosed home? Read up on the pros and cons of buying a foreclosed property as a real estate investments.

Jordan Newsom

Jordan Newsom is a highly-caffeinated writer who loves delighting readers, using content to teach, and broadening perspectives. When she's not behind a computer screen, she's hunting down the best coffee shops, breweries, and restaurant patios in Denver, Colorado.

Ale, Owen & Tyler Founders

Lucas Hanft

Belong

Annalise Mantz

Andrea Vale

Ale, Owen & Tyler Founders

Lucas Hanft

Belong

Annalise Mantz

Andrea Vale