Want to be wealthy? Direct investments are a great way to go–but make sure you know what you're getting into. As detailed in our recent case study, Matthew Rosenberg, Managing Partner of RoseCap Investment Advisors discusses how these direct investments i.e., the purchase of a controlling interest in an investment, such as a business or real estate, are both high-risk and high-reward, with uncertainties such as future sales growth, capital events, vacancy rates, and market rents that should be carefully analyzed before making decisions.
Rosenberg uses @RISK to help analyze risk levels of particular direct investment opportunities. In the case of commercial real estate investments, he examines variables such as rent rates, lease renewal probabilities, interest rate changes, capital expenditures (such as needing to replace a roof or air conditioning system), and many others. Because all these variables could combine in a myriad of ways, Rosenberg chose to use @RISK to better illustrate the range of outcomes to his client. “Our models use @RISK to ultimately give us a dispersion of values and a risk assessment of the property rather than one single number of what the investment is worth.”
Say, for example, RoseCap uses @RISK to run simulations on capital replacements (such as installing a new roof), or unexpected capital events–such as repairs on broken pipe. "Palisade’s software helps you really understand the potential for an investment to produce long term cash flows, while still considering events that many fail to account for,” says Rosenberg. “For example, many people buy rental properties as an investment and expect to make a fixed profit each month on the property; they don’t take into account the uncertainties, such as the tenant not making a rental payment, that may adversely impact the cash flows from that investment.”
Once RoseCap has performed an analysis on a direct investment for a client, they have the ability to incorporate the future performance of that investment into the total portfolio (or net worth) of the client, along with the client’s other investments. This provides a total net worth risk assessment for RoseCap clients. According to Rosenberg, “@RISK software has allowed my firm to take financial planning and risk assessment to a whole new level.”