Graeme Keith and I went on a quest to model our lives by applying state of the art risk management techniques. In the previous article we covered income and the associated risks, as well as basic living expenses and the risks associated with expenses growth. In todays article we will talk about the costs associated with owning a property and the risks associated. We modelled the uncertainty around annual maintenance costs and the risks of significant but rare events that would require up to 200% of an annual maintenance budget. Since one of our hypothesis was to keep existing property and invest in a new house, we do this risk analysis for both assets.
Read the first part here and second part here
| Maintenance | ||||
| Fluctuation taken as Gamma distributed | ||||
| Fluctation mean as percentage of base | 10% | k | 1,56 | |
| Fluctuation std. dev. as percentage of base | 8% | theta | 0,06 | |
| Maintenance existing property | 1818 | Mean | 2 000 | |
| P90 | 2 193 | |||
| Maintenance new proprerty | 2727 | Mean | 3 000 | |
| P90 | 3 290 | |||
| Risks: Maintenance existing property | ||||
| Unexpected large expenses up to 200% of annual | Frequency period (years) | 5 | lambda | 0,2 |
| Uses exponential distribution for impact of simple then | ||||
| analytical result to aggregate multiple impacts | P90 simple imact | 4000 | mean | 1 737 |
| Risks: Maintenance new property | ||||
| Unexpected large expenses up to 200% of annual | Frequency period (years) | 5 | lambda | 0,2 |
| Uses exponential distribution for impact of simple then | ||||
| analytical result to aggregate multiple impacts | P90 simple imact | 6000 | mean | 2 606 |
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