Stress-test the two assumptions that matter
Use sensitivity analysis to identify which underwriting inputs most affect a deal outcome.
The move: stop asking whether the base case works. Ask what breaks it. Sensitivity analysis changes one input at a time and watches the decision metric move. For rental real estate, the usual decision metrics are DSCR, cash-on-cash return, break-even occupancy, NPV, or equity multiple. The useful question is not whether every number is perfect. It is which number deserves your attention, negotiation, reserve, or walk-away rule. Start with inputs that are both uncertain and material: market rent, vacancy, insurance, property tax, repair cost, renovation duration, interest rate, and exit cap rate. Then use realistic ranges. A stress test should…
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