Stress testing your Real Estate Portfolio

3 Replies | Indianapolis, Indiana

When the good times are rolling we often forget to think about the negatives. That said I decided it might be a good time to Stress Test my real estate portfolio, before I went on another expansion/acquisition round in a new market. I want to understand my personal and portfolio debt to income ratio. How much a lost of income I could withstand and for how long before my portfolio collapsed. It was an amazingly humbling exercise that I would recommend to every investor, given we are at the top of Markets again in many markets. 

Here is how I analyzed things. First I broke things out into fixed and variable expenses in my business and also my personal expenses. Then I broke down my income streams to understand where all the flows were coming from. That allowed me to quickly see where my income was coming from and where my expenses were going out. From that I determined that debt to income ratio of 2.61 that is my every dollar of expense I had 2.61 dollars coming in to service that expense. 

So if I had 1,000 dollars of expense, I had 2,610 dollars of income coming in. This allowed me to understand how strong my income streams were in the event of a collapse in my various income streams. By understanding this I could adjust my income and see the probability of me losing one or more income streams and how it changed my ability to service my expenses. In my particular situation, I could lose 58% of my income and I would still be able to service my total expenses. So based off this calculation I determined that my portfolio is strong enough to move on with my expansion plan into a new market.

Business expenses as % of total expenses : 70%   

1) Fixed Expenses:   

     a)Monthly Mortgages: 45% 

b)Property Taxes: 18.7%

c)Utilities Expenses: 14.8% 

d)Licenses & Insurance:  5.4% 

2) Variable expense - Water bills + repair expense : 16%


Personal Expense as % of total expenses: 30% 

My monthly living expenses

a)Housing: 39.7%

b)Child Care: 25.4%

c)Living expense: 22.2%

d) Food: 7.9 %

e) Insurance: 4.8


1) Total Income - 100% 

 A) Rental Income: 42% 

 B) Wage income (W-2) : 26 % 

 C) House Flipping Revenue: 23% 

 D) Property Management Revenue: 5% 

 E) Stocks/Dividends: 4% 

Please let me know if you would like help walking through this process as it has been super helpful to understand my financial situation or send you the spread sheet I used.  


This is a valuable exercise. I will be sitting down with my husband for our "budget meeting" soon. I will talk with him about doing this with our accounts as well. I'm sure it will be eye opening. I expect to discover that we have a lot of wasted spending.

Great article. I'd truly appreciate if you would walk me through the process and provide the spreadsheet you used. 

I too would like to "stress test" my portfolio to understand how I would fair under a rental portfolio stress test.