Every projection you will ever read was built by someone who wanted the deal to work. Mine included. That’s not an accusation, it’s just the physics of who writes projections.
So before I wire money into anything, I run the version where my two biggest assumptions are wrong. Here’s the method, using the real numbers from the 45-unit building I bought in Boise this August.
Step one: kill the growth
My base case assumed rents grow 3.5% a year, which is a reasonable number for Boise. The downside case sets it to zero. Not slow. Zero, for five years, in a market I chose specifically because of its growth.
That single change strips out every dollar of the upside story. Whatever survives is coming from the building as it stands.
Step two: soften the exit
The base case sold the building in year five at a 5.50% cap rate, close to what I paid going in. The downside case sells at 6.0%, meaning buyers pay meaningfully less for the same income than I did. A colder market, not a hotter one.
Those two levers, growth and exit, carry more of any deal’s projected return than everything else combined. Stress them together and you learn what the deal actually is.
What survived
On my building, with rents flat for five years and a softer sale: a targeted investor return of 9.30% annually, against 20.21% in the base case. Cash flow stays positive every year. The loan coverage never drops below 1.43x, so there’s no point in the hold where the lender takes the keys. The implied sale lands at $232,475 a unit against my $194,444 basis.
The deal stops being great and stays acceptable. That’s the shape I underwrite for. The upside case decides how good a deal could get. The downside case decides whether I buy it.
All of that is targeted, not guaranteed, and honesty requires the next section.
What a downside case is not
It’s not the worst case. Mine stresses rents and the exit. It does not stack a vacancy spike, an insurance repricing, or a recession that empties units on top. Real estate can lose money, and any deal, including mine, can too. A downside case isn’t a floor. It’s evidence a deal doesn’t need perfection to work.
Anyone who shows you a “downside” that still looks wonderful either didn’t stress much or is selling hard.
Three questions to ask on any deal
- Does a downside case exist? A sponsor who answers “our base case is already conservative” hasn’t run one.
- What did they stress? Flat rents and a worse exit are the honest minimum. A downside that still assumes rent growth isn’t a downside.
- Does the debt survive it? The coverage ratio under stress is the number that decides whether a bad stretch is uncomfortable or fatal.
I published my actual downside case, the same document I ran before closing, in the free memo pack at neelypi.com/memo. Take the method, or take the document, and run it against the next deal someone shows you.
Return figures are targeted projections from NPI’s underwriting model as of August 2026, are not guaranteed, and depend on assumptions that may not occur. Any offer is made only through official offering documents to verified accredited investors. Investing in real estate involves risk, including loss of principal.
A short personal note from me most Fridays about what actually happened that week. Subscribe to the Friday letter. I read every reply.