Which variable might indicate a need for further investigation in a financial model?

Expense ratios exceeding benchmarks can be a significant indicator that warrants further investigation in a financial model. When expenses are higher than the established benchmarks for similar properties or market standards, it suggests that there may be inefficiencies in property management, unexpected costs, or potential issues with property operations that need to be addressed. High expense ratios can erode profitability and impact overall returns, making it essential to delve deeper into the specific costs driving these numbers. This could include examining maintenance costs, administrative expenses, or utility expenses to identify any anomalies or areas for cost-saving improvements.

In contrast, consistent return rates, stable occupancy rates, and positive cash flow typically signal good performance in a financial model. Even though these variables are important, they do not indicate an immediate need for further scrutiny as expense ratios do. Consistent returns and stable occupancy suggest a well-functioning investment, while positive cash flow indicates that the property is generating income above its expenses, which is generally a sign of financial health. Therefore, while all these factors are essential in evaluating a real estate investment, exceeding expense ratios is a clear red flag that suggests digging deeper into financial performance.