Here’s some breaking news. You have the power to predict the future with more accuracy. And as a real estate investor, you should be extremely happy about that.
Here’s how to do it. Simply start using Monte Carlo Simulations.
What’s that right? It’s a technique that helps you calculate a large number of possible outcomes for your investment and allows you to statistically estimate which set of outcomes will most likely occur. So, even if Murphy shows up, you’re ready.
This used to be something that only atomic scientists could do, but now you can do it with ease. If you already know some spreadsheet basics, and you’re willing to learn a few new tricks, then the computing power is yours.
When Should You Use a Monte Carlo Simulation?
You should run a Monte Carlo analysis before any significant investment for the same reasons you check a ladder before climbing it. You want to make sure it’s sturdy; you want to understand and reduce your risks. Make sense?
As a real estate investor, you make informed predictions (educated guesses) all day long. Without thinking about it, you account for fluctuating market demands, uncertain project completion dates, and all kinds of variables.
Basically, if you’re investment has timing and financial issues, which all of them do, you need to use the Monte Carlo Method to understand your risks.
Why isn’t your current estimating method adequate?
If you had t bet $100 that your calculations would match your actual investment outcome, wouldn’t you rather bet on landing within a range of values instead of hitting one target? Sure you would.
Instinctively we know we should be working with a ranges. We just don’t know how.
Even if it’s your practice is to calculate the best and worse case scenarios, you know you’re exaggerate the projections. Your variables will never all be ideal or worse-case at the same time.
Working with Monte Carlo simulations helps you make realistic predictions. Not only does the method lead you to find the most likely outcome, it also helps you find the odds of being correct.
A FREE 5-Day eCourse for Busy People
I know you’re busy. So I broke up the lessons in to five coffee-break-sized modules that step you through a basic example. Afterwards, you’ll be able to apply the method to your everyday work.
When you sign up, I’ll send you the following lessons:
Lesson 1 – Introduction to the basic example and equation
Lesson 2 – Examination of the variables and their ranges of possibilities
Lesson 3 – How to set up the equation in Excel
Lesson 4 – How to make basic interpretations of the results
Lesson 5 – How to make more advanced interpretations of the results
Your life won’t be the same after you understand this method
Are ready to get started? Sign up below, for FREE, and I’ll send you the first lesson.
Photo credit to www.by-rob.com
Great Job Al!
Thank you!
I saw you post in Bigger Pockets, however I do not have a pro account yet and could not post there. If I get an account soon I will post this there as well.
I liked your short course… however I have just a couple of suggestions.
1. It may be easier for a novice excel user if you provided some way of copy and paste for the cells. In a short coffee break it may be difficult for novice users to understand and implement the syntax of the cell data.
2. randbetween() is not supported in earlier versions of excel… and newer versions do not have it turned on as a default. You have to go to add-ons and turn on the Analysis Tool-pack. For older versions try =TRUNC(RAND()*((HighRange+1)-LowRange)+LowRange)
I plan on using this method in my Analysis of properties, with a few personal tweaks. I really appreciate that you are giving alternate ways to analyse properties!
Thanks for the great work!
-Allan
Hey Allan,
Thanks so much for your input. I’ll put on my thinking cap and get back to work….
Maybe I could link to some online tutorials that cover the topic of copying cells
and the other syntax.
You’ve just improved our course. Thank you!