CULFIDANT INVESTMENT SUCCESS INDEX, or CIS Index © EXPLAINED
WHAT IS CULFIDANT INVESTMENT SUCCESS INDEX or CIS Index© ?
“Culfidant investment success index, or CIS Index ©” is a quick-and-dirty way to evaluate the risk and reward of an investment. Here is how it works.
“Culfidant investment success index©” is defined as the result of using the rate of success probability (to reflect the risk level) to multiply the rate of return (ROI). It is an effective and practical rule of thumb that can be used to evaluate the combination of the risk and reward of an investment. We are going to use a few examples below to explain how it works.
A FEW EXAMPLES TO SHOW HOW TO USE THE INDEX
01 – “Low-return, low-risk” example – Let’s use the common bank saving account, which is used by many to save their money. The interest or, the rate of return annually of 2% is a fair bet, and the risk of not getting this rate of return is fairly low, or the “success probability” should be as high as 90 to 100%. Therefore, “the Culfidant investment success index” for this particular “investment” is
180~200 = 90~100% of P * 2% of ROI (after having all the % symbol removed to make it into an easy to read index)
in other words, the Index for this so called “low return, low risk” investment is around 180 to 200. Which is not very exciting at all.
One thing you may find very quickly is that many mediocre low risk and low return investments are having the CIS index in the lower-hundred range, which is a good indication that you may not get much out of it after all.
02 – Low-return and high-risk example –
Let’s consider someone who is investing into the stock market blindly – he might be fancied by the great performance of Warren Buffet of 20% ROI in the last half century, and feel himself could do at lease the half, if not the same, say 10% ROI is the goal. However, due to his lack of knowledge in the stock investment, his probability of getting this 10% is likely low, say 20%. therefore, his investment in stock may be predicted by the following CIS index
200 = 20% (P)*10% *(ROI)
Again, the CIS index is at the lower-hundred range (200 or so, may be lower)
03 – High-Return and High-risk example –
A perfect example I can think of is to buy lottery-ticket. You might wonder, wait a minute, Is buying a lottery ticket a low risk and high return? After all, for a small fortune of few bucks, you could make millions if you win?
Fair question. that is likely the biggest misconception lures many people into this win-lottery-ticket frenzy, while the government is making millions of it out of thin air. and here is why.
The fact you can afford to lose a few bucks is actually not the same thing as the “low risk”. The risk in an investment is defined as the probability (chance) for the investor to hit the target of the investment. In the lotter-ticket case, what is the the chance for one to win the multi-million lottery? It is one out of 20-million, for a 50-million lottery. Let’s say the cost of one ticket is $5. Use the formula of CIS index, you will get the following
CIS index = 0.5 = 1/20-million (P) * 50-million/5 (ROI)
As you may see, CIS index of 0.5 is not something make you excited at all.
04. Low-risk and high-return example
Let’s use Warren Buffett, the legend of stock investing, as an example to demonstrate what is so called low-risk and high-return investment.
In the last half century, Warren has achieved (meaning his success probability is 100%) the ROI of 20% annually. It means,
CIS Index = 100 (P) * 20 (ROI) = 2,000
Based on our experience, any investment project with a low CSI index that is in the lower range of hundreds, such as 200 or less, is likely a poor one (it is normally one of, or the combination of three types of so called Low-risk & low-return, High-risk & low-return, or high-risk & high-return).
In contrary, Higher CSI index of 20,000 or more indicates a healthy and promising investment. It is normally in the category called “Low-risk & High-return”.
EVALUATION ON 3-OPTIONS OF FINDING TENANTS USING CIS INDEX
Now let’s use CIS index to evaluate the 3-options to find A+ tenants, there are
Option 01 – Traditional DIY by landlord self
Option 02 – Using Conventional Property Management Service
Option 03 – Using CARMAP service
To keep it simple, we use an rental with a market rent of $1500.00 as an example, and our goal is to find A+ tenants who will stay for 5 years (or longer). This means the fulfillment of so called undercurrent cash flow click and see  of $3000.00 per year, or $12,000 for 5-yr period.
For the first option, the chance (success probability) to find such A+ tenant to stay for 5 years is very rare, or P is 1% or less. Although it seems no cost on surface, as all the work are done by the landlord as DIY, on average around 90 hrs may spent to find such tenant, if we use $40.00 /hr to estimate the time spent into the dollar value, the total cost will be $3,600.00, the ROI should be
($12,000-3600)/3600 = 233.33% annually
CIS Index = 1 (P) * 233.33 = 233.33
For the option 2, the chance (success probability) for a property manger to find A+ tenant might be marginal higher than DIY, it is still fairly low, say 5% or less.
In the meantime, you may spend 10% of rents as the PM fee, or a total of $9,000.00 for a property manager to work for you instead of yourself in 5 years. The ROI shall be
($12,000 – 9000)/9000 = 33.33% annually.
CIS index = 5*33.33 = 166.65
Now let’s see option 03 – Carmap service. It has been approved based on our own 50,000+ cases, 90 out 100 times we have A+ tenants stays over 5 years or longer, which give the P as 90% or 90.
The total cost of using CARMAP is $1800.00 that will guarantee you 5 years. therefore, the ROI is
($12,000.00 – 1800)/1800 = 566.67%
CIS index = 90 (p) * 566.67 (ROI) = 51,000.30
As you may see, the Option 1 and 2 are having CIS index of ~233 and ~167 respectively, versus the option 3 has the CIS of 51,000 or 200 times better than either option 1 or 2.
It is no brainer which option is going to bring you the homerun you need for your real estate investment success.