2 Replies

when using the spreadsheet or calculating the future estimate of appreciation, rent, expenses, inflation(as a percentage increase).  Where are you getting this trend analysis information from?  Is it just some guesstimation or is there a formula for figuring this out?

"It's tough to make predictions, especially about the future" - Yogi Berra

There is NO reliable source for what any of these numbers are going to do in the future.  I don't bother guessing at any of these.

Where they can be possibly useful is "scenario planning".  Instead of picking a single value, try a bunch of different values.  If your deal works for a large range of values, you're probably safe no matter what comes to pass.  But the deal only works if exactly the right future happens, you're probably not going to get a good outcome.

I develop investment models (for more than just real estate investments).  With any good model, you should develop at least 3 scenarios: projected or budgeted, best case and worst case.  Your scenarios should be based on the confidence of your projections (in statistics, it is based on the # of standard deviations from the norm based on the type of distribution for your data). If you've taken a statistics class, you will recall what they call "the bell curve" distribution.  When you develop predictive models, you can determine the accuracy of your model by back testing its accuracy.

Most people don't do (or even understand) how to develop predictive models.  If you can develop one that has some accuracy, you will be far ahead of the crowd.

God Bless You!

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