Explore the power of compounding money.
72 / Your Interest Rate = # Of Years To Double
For Example:
72 / 7.2% Return = 10 Years
72 / 14.4% Return = 5 Years
Lets say you took $20,000 and earned a 14.4% return on your investment.
In twenty years your $20,000 will have turned into $320,000.
Lets look at a conservative example, take the $20,000 and earn a 7.2% return on your investment.In twenty years your $20,000 will have turned into $80,000.
72 / Inflation Rate = # Of Years To Reduce Value by 50%
For Example:
72 / 4.8% Inflation Rate = 15 Years
In the first four months of 2007, U.S. inflation, as measured by the consumer price index, went up at a 4.8% annual rate. At this rate, it would take 15 years for your money’s buying power to be reduced by half.
lets say you took $20,000 and we endured a steady 4.8% inflation rate. In fifteen years your $20,000 will have the buying power of $10,000.
The Rule of 72 is fairly simple. As per the rule, you can calculate the amount of time it will take an investment to double in size if the interest rate of return is known. You can see the math above.
Interest increases the value of money, in the same way inflation decreases the value of money. The further into the future a payment, or sum of money is received the less it is actually worth. A dollar today buys more than a dollar in five years.
A lump sum payment from Outdoor Equities is strong protection against loss of income from inflation and other risks. Selling the billboard lease in the form of an easement for a lump sum payment has countless benefits, many of which revolve around the words CASH and NOW.
Tax benefits should also be considered when analyzing your easement sale. The income you are receiving from your annual lease payments is taxed as ordinary income. The payment from your easement transaction is taxed as capital gains. This may not sound big, but can make a huge difference in how much money you hold on to.
You should also consider your option to do a 1031 exchange with your billboard lease sale. Have you wanted to purchase another property? With a 1031 exchange you can take your lump sum payment and invest in another property while deferring your taxes, no gains are recognized. This is a smart, popular option that down the road will leave you owing another entire property instead of just a billboard land lease. Please discuss your 1031 capability with your tax professional as individual situations are unique.