25d • General discussion
Stress Testing: How Investors Protect Themselves From Bad Assumptions
No analysis is perfect.
The goal isn't predicting the future.
The goal is understanding what happens when reality differs from your expectations.
Here are three simple stress tests:
Rent Test
What if rent is 10% lower?
Vacancy Test
What if one unit sits vacant for 60 days?
Maintenance Test
What if maintenance doubles during the first year?
Many deals that look great initially become much less attractive after running these tests.
Exercise
Take a property you're analyzing and run all three stress tests.
Did your opinion change?
Discussion
Which stress test usually changes your analysis the most?
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Stress Testing: How Investors Protect Themselves From Bad Assumptions
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