What is the 7-10 Rule?
You want to buy a property for $400,000 with the hope it will grow to $800,000. Typically this could take 10 years. If it takes 10 years it will be 7% per annum and it is going to go up in price. Whether it is property or anything else, if it averages 7% per annum, it will double in price.
If it doubles faster than that, then it has been going up by 10%. So basically somewhere between 7-10% the property has been going up in value.
In Tasmania this rule does not apply because it is 1-2% growth per annum on average over the last 10-14 years. They may have little peaks and troughs through there, however, statistically speaking, it is not going to reach the 7-10% so looking down there may not be your best option.
What you have to do if find property that fits into the 7-10% per annum rule.
Not hard to do – not really. Most people think if the property went up in value by 10% last year, is that a good idea to buy that property because it went up 10% in 1 year – NO. Most people don’t research back far enough. They will look at 1-3 years statistics and think that is good enough for me. It will continue at that. Just like Superannuation – if you look at your super statement, you look at 1-3 year average, 5-7 & 7-10 year averages, you want to look at what it has been doing long term. You want to do the same with property. So if you wish to buy said property for $400,000 you want to look at what it has been doing over the past 7-10 years.
What is the 72 Rule?
The 72 rule is a formula where you divide the average capital growth percentage into 72, which will give you the number it takes for the property to double in value.