New idea for a tool?

Question

Generally speaking, I see the majority of real estate analysis done using the deterministic approach we're people essentially use assumed averages to evaluate a property. In other investment realms such as corporate finance or stocks, people often use a probabilistic approach where each variable has a range of outcomes that vary along some distribution (i.e. normal/bell curve, triangular, etc). Considering returns are often non-linear and affect of compounding money, I think this approach would be more widely used.

I have been exploring writing a program to do a program to do such an analysis. The tool would be able to do myriad analysis to evaluate the deterministic analysis such as margin of safety, probability of a return, maximum buy price given a certain probability of a return, and calculate the opportunity cost comparing this investment to an equal investment in an index fund.

Does anyone think a tool like this would be useful and beneficial or do you think it's more of a waste of time? Would anyone be interested in a tool that could do this?

Joe Villeneuve · Answer

When I said "overkill", I didn't mean the analysis was faulty.  I meant it was overkill on the number of numbers used to analyze it.  Like I said, I'm a numbers guy.  There's a point where too many numbers can just complicate the simple...like this does.

Steve McGovern · Answer

Generally, I agree with @Joe Villeneuve.  HOWEVER I can see value in a market like this, where you determine, only for yourself, what those lower parameters may become in the event of a crash.  If I did this, I would NEVER show my Lenders the proposition (maybe unless the investment was SO superior that it beat even your worst-case projections.)  but for your own, personal, investment and DD purposes, I agree an analysis like what you describe can be helpful on the LOW end in a heated market.

Joe Villeneuve · Answer

Overkill and would end up being just a lot of necessary numbers.  I'm a big numbers guy.  You're trying to use the stock market, and other outside comparisons to REI.  REI is a stand alone investment platform.  You can't use the stock market terms and analysis and do it justice.

What you are proposing is overkill for what is really a very simple analysis...if you use the proper sources/numbers to do it.

Analyze Markets first to find Micro-markets.  THEN, analyse the properties within those markets that match the profiles you need that brought you to those markets to begin with.  REI Analysis is critical...but not nearly as complex as it has been made out to be.