How Often Does Real Estate Double in Value

The value of real estate typically doubles in a period of 10 to 20 years, depending on various factors including location, market conditions, economic trends, and property type. Historically, the '72 rule' suggests that real estate appreciates at an average rate of 6% per year would double in approximately 12 years (72 / 6 12). However, this can significantly vary based on local market dynamics, economic conditions, and other variables.

Factors Influencing Real Estate Value Appreciation

Let's break down the key factors that can impact the value doubling of real estate:

Average Houses

Investors often refer to 'bread and butter' houses, which are typically owned by middle-class to lower-middle-class individuals. These are houses with 3- or 4-bedrooms, 2-baths, and about a quarter-acre of land in suburban areas. Such houses are not mansions and are not in prime condition. Here, the value doubling can take an average of 15 to 20 years.

Good Condition

Assuming the house is bought at around market value and is not run-down, the value appreciation rate can be used to estimate the doubling period. For instance, if the real estate appreciates at an average rate of 6% per year, it would double in about 12 years. However, homes that have been over-improved will not see the same premium in value, and those in poor condition can be doubled in just 4 to 6 months by fixing them up.

Example: I was involved in a transaction for a house in a bread-and-butter neighborhood. Houses there sold for about $340,000, while this particular house was in terrible condition and was sold for $150,000. After repairs costing about $70,000, it was sold six months later for $350,000. Even considering the repair and holding costs, this is close to doubling in six months.

Average Neighborhood

Houses in bad neighborhoods may appreciate little or not at all. Renters making money solely through cash flow often own such properties. The best appreciation rates are seen in average-to-good neighborhoods, where major improvements such as a new subway system or major company relocations can significantly boost property values.

Stable Economy

The economic stability is crucial. Those who bought houses before the Great Recession may still be close to breaking even, with significant drops in value during 2007–2010. For instance, people who bought depressed-price houses in 2010 may have doubled their money in 7 to 8 years. The current uncertainty with COVID-19 may replicate the Great Recession, leading to longer periods for price doubling. If you bought in 2019, you might be waiting more than 15 years for a price doubling. However, those buying later in 2021 might see a quicker doubling.

Bottom Line

There are certain factors you can control, such as property condition and strategic purchasing, and others you cannot, such as overall economic conditions. A generalized statement that values will double in 15 to 18 years has limited applicability to individual purchases. The value can vary significantly based on local market dynamics and economic conditions. Therefore, understanding and analyzing these factors can help in making informed decisions about real estate investments.