If you were offered three pieces of information on your assets what would they be?

One day an Investor was walking along worrying about their portfolio: should they be buying or selling?

They saw on the ground an old oil lamp. Optimistically, they gave it a rub and, lo and behold, out popped a Research Genie who granted them not three wishes, but three pieces of market information

What three pieces of information would be most valuable the investor thought? Surely I need to know the level of future income. So the investor said the Genie:

For my first wish, I would like to know the long-term average rate of rental value growth

For my second wish I would like to know the long-term likelihood of tenant renewal

And for my third wish, I would like to know the long-term average vacancy period

Excited, the investor calculated the future cash flows of every property based on these three pieces of information

The investor knew that some of the properties would generate a higher income than others, but could not know for sure which, but they knew that if they kept the whole portfolio they could be very sure of the future cash flow (if I find another Research Genie the investor thought, I’ll wish for the power to spot those properties which will have lower vacancy periods, higher growth or a higher lease renewal rate).

One year there was a recession and rents fell. This time on his walk the investor bumped into another investor who was very pessimistic.

“I’m selling” said the pessimistic investor. “Rents always fall, tenants never renew and properties never let”. The investor thought: next year might also be bad and the price might be even lower but I’ll be happy buying at this price in the long-term (If I could find another Genie they thought, I’ll ask them how to time when the market is at the bottom). However, the investor calculated that the price the pessimistic investor wanted underestimated the value of the future income, so the investor bought the pessimistic investor’s whole portfolio.

The next year the economy recovered and rents were booming. This time on his walk the investor bumped into an investor that was very optimistic.

“I’ll buy your portfolio” said the optimistic investor, before they had even said hello. “Rents are going up forever, tenants always renew and properties are never vacant”. The investor thought: next year might be even better and the price might be even higher, but the price on offer exaggerated this likelihood. The investor sold his whole portfolio to the optimistic investor.

The investor lived happily…until the next cycle.