The Real Estate Financial Planner Blueprint™
SS 010 Investing $100,000 in Savings at Approx 2%/yr

Risk Report

The Risk Report shows a variety of risk measures for your  Scenario. Use it as a quick way to evaluate the risk profile of your entire strategy.


Inflation Adjusted

Total Debt To Net Worth

The  Total Debt To Net Worth shows the sum of all your mortgages divided by the total Net Worth for that month.

Be aware that not all Net Worth is easily accessible and some of it could be consumed in the costs of accessing it. For that reason, you may like the  Total Debt to Account Balances as a more liquid measure of your risk (mortgage balances) to your liquidity (account balances).

The  Total Debt To Net Worth consists of the  Total Debt and the  Net Worth. Both are shown, separately, below so you can see what is happening with each.

Sometimes folks improve their  Total Debt To Net Worth by reducing their debt (mortgage balances). Sometimes they  Total Debt To Net Worth by increasing their Net Worth. Often times, it is a combination of both.

While there are exceptions to just about every rule in life, in general, typically you'd want to see your risk (in this case measured as  Total Debt To Net Worth) go down as you get closer to retirement.

Inflation Adjusted

Sometimes it is difficult to think about future dollar amounts as inflated values. It may be easier to think of them in what they're worth in today's, inflation adjusted dollars. That's what these versions of the same  Charts are.

Total Debt To Account Balance

The  Total Debt To Account Balance shows the sum of all your mortgages divided by the total Account Balances for that month. It specifically ignores any Equity you may have.

The  Total Debt To Account Balance consists of the  Total Debt and the  Account Balance. Both are shown, separately, below so you can see what is happening with each.

Inflation Adjusted

The charts above show future, inflated dollars. Here are the inflation adjusted versions of the same charts.

Since you have 2  Accounts, here is also a chart showing the  Account Balance for each.

Inflation Adjusted

And, here is the inflation adjusted version of the same chart. Dollars are today's dollars below.

Total Rent Resiliency™ Percent

Rent Resiliency™ is another measure of risk. It tells us how resilient the rent you're collecting is to maintain positive cash flow.

Some folks may have a large number of properties with a small amount of cash flow. But if rents dropped even $100 per month, a large percentage of their cash flow could be eliminated. This would be an example of having very poor (low) Rent Resiliency™.

Alternatively, some folks may have free and clear properties with no mortgage. If rent drops $100, it will reduce their cash flow, but a much smaller percentage of their overall cash flow. This would be an examplke of excellent (high) Rent Resiliency™. The more your rent can decline and still have positive cash flow, the more resilient you are to rent reduction shocks and therefore the less risky your portfolio is.

The following  Total Rent Resiliency™ Percent shows how resilient your entire portfolio is to rent shocks. Higher is typically lower risk.

If you'd like to see how resilient each  Property is to rent shocks, check out the  Rent Resiliency™ Percent for each  Property.

What typically improves Rent Resiliency™?

  • Cash out refinancing  Properties
  • Higher expenses including taxes, insurance, maintenance, property management
  • Below market rents

What typically hurts Rent Resiliency™?

  • Rate and term refinances that lower your monthly payments on  Properties
  • Paying off  Properties
  • Well managed properties with optimized taxes, insurance, maintenance, property management
  • Higher rents

Cash Flow

In general,  Scenarios with strong Cash Flow are less risky.

If you'd like to see which  Properties contribute to reducing risk by providing strong Cash Flow, you can see each  Property separately in the chart below.

Inflation Adjusted

It can be challenging to think of Cash Flow in future, inflated dollars. Here's an inflation adjusted verison of the same chart showing the cash flow—even future cash flow—in inflation adjusted today dollars.

Here's the inflation adjusted Cash Flow of each  Property separately.

Total Rent Resiliency Dollar

How much, in dollars, can rents decline before you have negative cash flow?

Inflation Adjusted

True Cash Flow™

Unlike regular Cash Flow, True Cash Flow™ also takes into account the Cash Flow from Depreciation™.

Cash Flow from Depreciation™ are an estimte of the tax benefits you'd also receive for owning a rental property.

Inflation Adjusted

Here's the inflation adjusted version of the  True Cash Flow™.

True Cash Flow™ vs Property Management Fees

We've discussed the concept of Rent Resiliency™ and how it measures how much rent can drop before you have negative cash flow. Rent Resiliency™ is impacted by what you are paying for insurance, taxes, maintenance, capital expenses and... property management fees. It is more difficult or impossible (in some cases) to eliminate insurance, taxes, maintenance or capital expenses on a property. However, if things got rough, many real estate investors feel they could manage their own properties.

Since you could manage your properties yourself, I think looking at and better understanding the relationship of your cash flow (True Cash Flow™ which includes Cash Flow from Depreciation™ in this case) and what you're paying to a property manager is important. You could take over managing your properties yourself (in most cases) and save this expense.

A discussion of risk and choosing to manage your properites wouldn't be complete without at least mentioning that there is an increase in risk to you when managing your properties... you must then become an expert at property management, get adequate and appropriate legal advice and truly understand and follow all the... seemingly ever changing... laws around it.

Inflation Adjusted

Safe Withdrawal Rate

The Safe Withdrawal Rate you choose to use reflects how optimistic you believe your returns on your non-real-estate holdings are to perform and perform consistently. A higher Safe Withdrawal Rate means you believe you can safely withdraw a higher amount from your non-real-estate accounts and not run out of money. This tends to be associated with a higher level of risk. A lower Safe Withdrawal Rate means you feel you need to be more conservative with how much you can safely spend from your non-real-estate accounts. A lower Safe Withdrawal Rate tends to be associated with a overall lower level of risk.

The Safe Withdrawal Rate is just part of the big picture. It helps to understand how the Safe Withdrawal Rate combined with the money you have in your  Accounts could potentially provide income.

The following  Total Account Balance shows how much you have in all your  Accounts.

Multiply your Safe Withdrawal Rate (divided by 12 to get a monthly amount) times the Total Account Balance in that month gives you an idea of how much you believe your  Accounts can provide "safely" each month. That's show in the  Total Account Balances × Monthly Safe Withdrawal Rate below.

This amount plus your net Cash Flow from rentals (after all expenses) is what determines whether you've achieved financial independence or not.

Inflation Adjusted

Your  Total Account Balance adjusted back for inflation to be in today's dollars.

Your  Total Account Balances × Monthly Safe Withdrawal Rate adjusted for inflation and shown in today's dollars.

Net Worth

Inflation Adjusted

Total Cost to Access True Net Equity™

How expensive is it for you to access the equity in your  Properties that you'll actually get to keep if you sold it (True Net Equity™)?