2015: Value at Risk (VaR) for Real Estate Investors: Calculation Methods and Risk Comparison

In this episode, Jason Hartman discusses the ongoing shortage of home listings in the United States, which may last for up to 28 years due to low-interest mortgages. He explores potential solutions like portable mortgages and eliminating the due-on-sale clause but highlights the challenges associated with them. Despite the lower demand and affordability issues, the severe lack of inventory is restricting home sales, making a housing crash unlikely. Jason also emphasizes the resilience of the suburban market and the revival it is experiencing as more Americans, including millennials, choose to settle down in suburbs rather than cities.

Jason also welcomes back Manny Kim who explains the concept of Value at Risk (VaR) and its significance for investors, particularly in real estate and income properties. VaR is a statistical measure commonly used by investment banks to assess the potential risk and probability of losses in a portfolio or group of assets over a specific time frame. Manny discusses three methods of measuring VaR: historical data analysis, parametric method, and Monte Carlo simulations. He focuses on the historical data approach to illustrate the calculation of VaR for stock markets and income properties. The analysis reveals that the stock market carries a higher risk compared to income properties, with greater potential for losses at given odds. By quantifying the potential losses, VaR provides investors with a precise measure of risk, allowing them to make informed investment decisions.

Website: https://gizacapital.com/

#ValueAtRisk #InvestmentRisk #RealEstateInvesting #IncomeProperties #StockMarket #RiskManagement

 

Key Takeaways:

Jason's editorial

1:20 Greetings from Cannes, France 

2:25 A majority of counties have listings below 2017 levels

4:24 Breaking the lock on the property market

8:29 Disruptive tech that increases housing supply is needed

9:38 Hardly an change in housing supply since 2017

10:13 Existing home sales fell 23% in April

13:36 Top metros with the most foreclosure starts in Q1 2023

15:20 Millennials and America's surprise revival: The Suburbs

Manny Kim interview

20:12 Value at Risk (VaR) and you as an income property investor

21:55 Three ways to measure VaR

23:24 Historical Data method for stocks and income property

28:12 Comparison: Stocks and Homes

Website: https://gizacapital.com/

 

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