Assessing Risks / What If Scenarios

[Matt Ellis]

Hi All-

If an investor follows the rules of thumb that bigger pockets lays out (2% rule, etc) you can ASSUME  that there is a large enough cash flow cushion to absorb any risks in the property. While the property may not still return 20% cash on cash, it would not be losing money on a monthly cash flow basis (hopefully..)

But I think that is lazy and irresponsible, especially if you own anything more than a property or two.

So I generally try to run what if scenarios on each property and then subsequently run what ifs on my larger portfolio to make sure that the portfolio can weather any economic storm that may come through.

I have only been in RE for a few years and didn't gain the experience from 2008 so my question to the group is what scenarios do you test or have you encountered? 

Currently the scenarios I consider are:

1) Housing slumps: reduced liquidity and rent decreases ..

2) Money lenders calling a loan for some reason..transferring title to LLC etc.

3) Uninhabitable property... fire, flood etc...  (mitigated by insurance)

4) Irregularly high vacancy rates

5) Requirements for a capex infusion...new roofs etc.

Thanks in advance!