As we discussed last time on the blog, pandemics, floods, and wars are only some of the things on the never-ending list of things creating market uncertainty. Consequently, analysing real estate deals can seem almost impossible, because no one knows what tomorrow will bring. Here at Wills Property, we think the best case/worst case/realistic case formula is a simple, no-nonsense approach to analysing a potential property purchase, whether it’s a first home, an investment property, or a downsizer.
Best Case Scenario
This is your most optimistic analysis of your potential repayments. What if the rental market explodes? What if interest rates stay low for another 3-4 years? If everything goes as well as you could possibly hope for it to go, where will you end up financially? If it’s an investment property you’re looking at, how much could you make if everything ran perfectly?
Worst Case Scenario
Before you get too excited about the dream investment you’ve just put together, it’s time to abandon all optimism and unpack your worst-case scenario. Ask yourself, what if there is another lockdown and I can’t find a tenant for four or five months? What if I lose my job? What if interest rates rise sharply just after I secure my mortgage? You want to discover whether you could financially handle it if everything that could go wrong, did.
In your final scenario, you’re looking at what is most likely to happen. Assuming the market remains relatively steady and follows current predictions, where will you end up financially? This scenario should allow you to comfortably cover your mortgage but give you room for a rainy day and low stress in covering other financial commitments.
After considering these three outcomes, if you can see yourself surviving or even flourishing in all three, then this property deal might be the one for you. Your best-case scenario is your incentive to move forward – is it exciting enough? If you can’t survive the worst case or are even feeling hesitant about the realistic case, then count it as a sign to keep looking. Not every deal will be this easy to analyse and having a property expert who will take the time to get to know your specific situation is the best assurance you can have against committing to a bad property deal.