As property investors, it can be a numbers game. As an ex-commercial accountant, I’ve always had a very conservative approach to stacking deals. I’ll give you an example.
For our latest project #ASP13, we predicted rents would be c. £2,640 per month. This is because of other properties we have in the area and we were fairly sure this is a likely scenario. Since stacking our figures in April 2021, the rental market has exploded and the demand for premium quality rooms has shot through the roof. As a result, not only did we fill all our rooms in a matter of weeks (sometimes days), we also exceeded these expectations with a 9% increase on the expected result.
It’s always nicer to have a 9% bonus than expecting the best result and not being able to obtain it. This is just for rents, this is the case for any line of the P&L and also within the deal stacking process - in particular for end valuations!
In last month’s blog, we unveiled that we managed to score a fantastic valuation a little higher than what we originally anticipated which is great! I would rather have a deal that works on the worst case scenario and take the up side.
One particular tool that investors should consider when deal stacking is a scenario analysis. This involves you looking at the worst, expected and best case situations for all lines of the P&L or the deal to determine how much flexibility you have in your numbers. If the deal stacks on the worse case scenario, it’s likely to be a good one. Expected case are current values and best cases factor in a rise in expectations. Example: Worse Case: Valuation is downvalued by £50k Expected Case: Expected Bricks & Mortar Market Value based on market conditions Best Case: Hybrid / Commercial Reval, underpinned by increased market forces
| Worse Case | Expected Case | Best Case |
Rental | | | |
Expenses | | | |