RealInvestorX
Deal analysis by strategy
How to stress test a rental deal before you offer
A deal that only works at your base case is a forecast, not an analysis. Change one assumption at a time, then all of them, and see what survives.
Illustrative inputs for learning, not market data or a forecast. Replace every number with figures from your own deal.
The base case
A $300,000 rental (net operating income $21,696 a year) at $2,900 a month, 20% down at 6.5%, 5% vacancy, 10% repairs and 8% management. Base: cash flow $291 a month, DSCR 1.19, cash-on-cash 5.1%.
Change one thing at a time
- Rent 10% lower: cash flow $68 a month, DSCR 1.04, cash-on-cash 1.2%.
- Vacancy 12% instead of 5%: cash flow $88 a month, DSCR 1.06, cash-on-cash 1.5%.
- Property taxes and insurance 25% higher: cash flow $185 a month, DSCR 1.12, cash-on-cash 3.2%.
- Refinance rate 1.5 points higher: cash flow $47 a month, DSCR 1.03, cash-on-cash 0.8%.
- Repairs at 15% of rent instead of 10%: cash flow $146 a month, DSCR 1.10, cash-on-cash 2.5%.
Then change everything at once
All five together: cash flow -$596 a month, DSCR 0.66, cash-on-cash -10.4%.
The combined case is a loss, which is normal for a deliberately harsh scenario. What matters is how much cash reserve you would need to carry it, and which single assumption does the most damage.
How to read the results
- Rank scenarios by damage. The biggest drop shows which assumption to verify hardest before you offer (in this example: refinance rate 1.5 points higher).
- Compare DSCR with the 1.25 reference line used in the DSCR calculator and with your lender's actual minimum.
- Size your reserve to the worst single scenario, then ask whether you could carry the combined case for six months.
- If the deal needs a near-perfect base case to work, lower your offer or pass.
Try it with your numbers
Frequently asked questions
How many scenarios should I run?
A handful that match real risks: rent, vacancy, taxes and insurance, financing rate and repairs. More scenarios rarely change the decision.
What if the combined case loses money?
That is expected for a harsh case. Use it to size reserves; the single-scenario results show whether the deal is resilient to any one shock.
Is this a forecast?
No. The inputs are deliberately illustrative, and the exercise is about sensitivity, not prediction.