The three factors that most heavily affect our risk (of return) posture when acquiring residential properties are final valuations, holding period, and the cost of borrowed funds during the hold time.
This risk analysis, running 200 trials, demonstrates a range of ROIs from 12% to 20%, with an average Internal Rate of Return (ROI) of 15.2% when varying the three factors to a 1.6% standard deviation.
|Risk Analysis Assumption||Lowest||Likely||Highest|
|Gross Property Sale Price||$1,800,000.00||$2,000,545.00||$2,400,546.00|
|Holding Period||5 Years||7 Years||8 Years|
|Loan Interest Rate||6% Annually||7% Annually||8% Annually|
|Average IRR||15.2%||Lowest IRR||11.9%|
|Standard Deviation||1.5%||Highest IRR||20.0%|
|Risk Analysis||Proforma Income Statement||Assumptions Page|
Joe Manausa, MBA is a 26 year veteran of real estate brokerage in Tallahassee, Florida and has owned and managed his own company since 1992. He is a daily blogger with content that focuses on real estate analytics and providing his clients with a tactical advantage in today's challenging market.