The Best-Case Trap: Why Optimistic Projections Kill Portfolios
Every property investment looks good in the best-case scenario.
Zero vacancy. Rent increases every year. Capital growth at 7% per annum. No unexpected repairs. Interest rates that stay low forever.
The best-case model is comfortable. It confirms the decision you've already made emotionally. And it's how most NZ investors get into trouble.
What Best-Case Modelling Does to Your Brain
When you project into the best case, your brain anchors to that number. The $400/week positive cashflow in year three starts to feel real. You start spending it mentally before you've earned it. You make the purchase. You take on the debt.
Then reality arrives.
The tenant leaves in month four. The hot water cylinder dies. Interest rates move 75 basis points. Rent growth stalls. Suddenly the $400/week positive cashflow is a $180/week drain on your personal income.
You're not in financial crisis. But you're uncomfortable. You hold on longer than you should, or sell at the wrong time.
The Three Scenarios You Actually Need
Robust investment modelling requires at least three projections:
Best Case: Optimistic but not delusional. High end of market rent, 1 week vacancy, moderate capital growth. This tells you the upside.
Base Case: Realistic. Current market rent, 2–3 weeks vacancy, conservative capital growth, maintenance at 1% of value per year. This is the one you make decisions on.
Stress Test: What happens when things go wrong. Rate rise of 2%. Four weeks vacancy. A $5,000 repair. Rent growth flat for two years. This tells you whether you can survive a bad year.
If the stress test scenario still leaves you in a manageable position, the investment is worth considering. If the stress test sends you underwater, walk away regardless of how good the base case looks.
Common Assumptions That Kill NZ Portfolios
Vacancy rate of zero: Even excellent properties have 2–4 weeks of vacancy per year. Budget for it.
Capital growth of 7%+ forever: NZ property has delivered strong long-term growth, but it is not linear. Model with 3–4% per annum for the base case.
Maintenance at 0.5% of value: The real number is closer to 1–1.5%, particularly for older Wellington villas and 1970s–1990s construction.
Interest rates staying flat: They don't. A 1.5–2% rate rise stress test is not paranoid — it's prudent.
The Cashflow Forecast Engine
The BI SmartStudio Cashflow Forecast Engine is built around three-scenario modelling. You enter your assumptions once, and it outputs best-case, base-case, and stress-test cashflows side by side. You see exactly where the risks are before you commit.
No more anchoring to the optimistic number. Just a clear view of the range of outcomes.