Alternate Universe Modeling™

Alternate Universe Modeling™ is our version of doing  Monte Carlo simulations for our  Scenarios.

In the simplest terms you take a  Scenario you’ve created.

For example, check out Andrea in Ep 1: Andrea Buys 8 Rentals with Down Payments for 2.

That does NOT utilize Alternate Universe Modeling™ but we could add variability to:

• Yearly Rate of Return for money in  Accounts that are invested in the stock market
• Appreciation Rate for  Properties in the  Scenario
• Rent Appreciation Rate for  Properties in the  Scenario
• Mortgage Interest Rates for  Properties you might buy in the  Scenario
• Inflation Rate for the  Scenario

Using the Real Estate Financial Planner™ software you could make almost anything variable. But these tend to be the most common ones to make variable when we do Alternate Universe Modeling™.

With the basic model, you tend to get relatively smooth lines. For example, here’s a chart comparing Net Worth when we have all static assumptions versus Net Worth for a single run where all the things we discussed above were variable.

If we were to run the one where everything was variable again, it would be different. Home prices would go (and maybe down) at different rates each month. Rents too. That would change Cash Flow. And, mortgage interest rates which would also impact Cash Flow.

Each time we run it, that’s an Alternate Universe where things in the future happened (slightly) differently.

For example, here’s 10 Alternate Universes for the same Net Worth and the same  Scenario.

If we did it 50 times, we’d see the results for 100 different Alternative Universes.

If we run it 100 times, it actually breaks our charting application trying to export the image. And, it is really hard to see what’s going on anyway.

Instead, we tend to summarize all the runs and show the range of values. For example, here’s the 100 runs just showing the band for the best run and worst run (the extremes).

The dark blue line in the middle is the median (the middle most case). Half of the runs are better than the median. Half of the runs are worse.

I could also show you the 25th and 75th percentiles as well. The darker band of blue in the middle now represents 50% of all the runs.

While we’ve been showing you Net Worth with our Alternate Universe Modeling™ we can show  Charts for ANY view into our real estate investing strategy for the entire  Scenario, any  Account, or any  Property.

Want to see a  Chart showing how likely you are to achieve your goal of achieving financial independence with your Minimum Target Monthly Income in Retirement? No problem…

Want to compare how the strategy for  Andrea in Ep 1: Andrea Buys 8 Rentals with Down Payments for 2 compares to her paying off mortgages early in Ep 5: Andrea Pays Off Properties Early with Cash Flow?

Yes, I thought you might. Here you go…

When we discussed this using the more basic, static returns we suggested that that paying off properties seemed to allow her to achieve financial independence a little faster. When we run it using Alternate Universe Modeling™ we see a more nuanced understanding of it.

For example, here’s a zoom into month 120 (year 10), where we see the odds of her having achieved financial independence.

She has a slightly higher chance of getting closer to financial independence by NOT paying off her properties early. Well, that’s certainly interesting.

If we add in Ep 4: Andrea Hires Professional Property Manager, we can see that… as we’d expect… that means she is less likely to achieve financial independence as fast hiring a professional property manager.

Check out our more advanced Alternate Universe Modeling™ for other  Scenarios to learn more.