Key Takeaways
- Five standard stress scenarios (vacancy spike, rent decline, rate increase, value decline, combined) should be modeled quarterly.
- Risk mitigation operates on four levels: portfolio, property, deal, and capital structure.
- Minimum debt service coverage ratio of 1.3x on every property provides margin against individual property stress.
- Comprehensive insurance ($15K-$30K annually for 30-50 units) is the final protection layer when mitigation is insufficient.
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Test Your Knowledge
1.How many standard stress scenarios should an REI company model quarterly?
2.What is the purpose of identifying specific properties that become distressed first in stress testing?
3.What debt service coverage level indicates the portfolio has insufficient margin?