Discovering the Simulated Forecast

At the heart of the Vertical City Toolkit is a powerful feature: the forecast simulator. This tool delivers more realistic, data-driven reserve fund projections than the traditional reserve fund study (RFS) process, which often uses fixed assumptions and simplified calculations. By combining uploaded RFS data with modern forecasting methods—including investment constraints, historical probability distributions, and simulation techniques—the Toolkit gives boards and property managers a deeper, more reliable understanding of their future cash position.

Real-World Constraints: The Hidden Risks of Traditional RFSs

Let’s take a closer look at the kinds of systemic errors traditional RFSs tend to make—and how the simulated forecast improves on them.

Systematic Error in Interest Calculation

Many RFSs assume all investments mature annually. In reality, most condo corporations invest in longer-term GICs, meaning funds aren’t liquid every year. The RFS therefore overstates annual interest income, distorting future fund balances.

Holding Cash Back

Most boards keep some cash on hand for emergencies—often $100,000 or more. Traditional forecasts assume this is invested and earning interest. In practice, it’s not, meaning RFSs again overestimate growth.

Static Interest and Inflation Rates

No market stays flat for 30 years, and yet traditional RFSs typically freeze interest and inflation at one fixed rate. By contrast, the Vertical City Toolkit simulates rate changes year over year using historical volatility, giving you a forecast that actually reflects how economic conditions evolve.

From the Reserve Fund Study to the Forecast Simulator

When users upload a reserve fund study (RFS) to the Vertical City Toolkit, the platform processes the data and displays it on the Report Card page, as seen in the chart below:

(If you're not sure how this line is plotted in the first place, that's okay! Just check out: Plotting the Cash Flow Table.)

This chart shows two lines:

• Yellow line: The forecast as projected by the engineering firm in the uploaded RFS.

• Blue line: The simulated forecast generated by Vertical City’s forecasting engine.

Let’s break down how these lines differ—and why it matters.

The Study Forecast

The yellow line represents the standard RFS projection. It reflects year-by-year closing balances based on anticipated expenditures, contribution schedules, and assumed interest and inflation rates.

While engineering firms do solid work projecting physical component lifespans and associated repair costs, financial forecasting isn't their specialty. These projections often rely on simplified assumptions—for example, assuming all funds are always available and can be reinvested annually. That’s not how reserve fund investing actually works. As a result, RFS forecasts often overstate interest income and underestimate potential liquidity issues.

This is where the simulated forecast comes in.

The Simulated Forecast

The blue line shows a projection generated using more realistic and sophisticated assumptions. Using the data from the RFS as a foundation, the simulator models how the reserve fund is likely to behave under real-world constraints—like investment lock-up periods, fluctuating interest and inflation rates, and emergency cash holdings.

Some of the key enhancements include:

Modelling Available Cash

RFSs typically assume that 100% of funds are always available, but that’s rarely true in practice. For example, GICs (Guaranteed Investment Certificates) often tie up funds for up to five years. Our simulator accounts for the availability of funds, so interest income isn’t overestimated and liquidity risks aren’t ignored.

Spot Investing and Investment Maturity Strategy

Real-life investment strategy matters. If a major capital repair is scheduled in Year 3 but all the money is tied up in 5-year GICs, the board might have to break investments—losing interest or paying penalties.

The Vertical City Toolkit models staggered investment strategies, where GICs are placed in a way that they mature gradually each year. This spot investing approach results in a rolling cycle of maturing securities that aligns better with expected cash needs.

On the Toolkit’s Investment Dashboard, users can view a maturity chart that shows whether their investment profile is balanced. Ideally, the bars showing maturing investments (blue bars in the chart) should be evenly distributed. If not, it could signal years with limited access to cash.

Simulating Interest and Inflation Rates

Perhaps the most important innovation is how we treat interest and inflation rates. Most RFSs use a fixed annual rate—say, 3%—for decades into the future. That’s not realistic.

The Toolkit uses a Probability Density Function (P.D.F.) to model how rates change over time. Based on historical data (e.g., TSX-linked rates), we simulate thousands of possible future outcomes. Instead of a single line, we get a range of forecasts—more accurately reflecting real-world uncertainty.

These simulations are based on two key statistical concepts:

• Mean: The average annual change.

• Standard deviation: The volatility of those changes.

The resulting bell curve (normal distribution) shows the probability of various rate changes occurring each year. Users can modify these assumptions using the Forecast Calculator to match their risk profile or market outlook.

Eligible Securities and Adjustable Inputs

The Toolkit models reserve fund investments using generic investment products that are eligible under Ontario’s Condominium Act (i.e., CDIC-insured, principal-protected securities). These include:

• Standard GICs: Fixed interest rate and fixed term.

• Market-Linked GICs: Tied to indices, with variable return.

Rather than assuming specific products or financial institutions, the simulator allows user-controlled inputs in the Forecast Calculator. Condo boards or managers can adjust return rates, holding periods, and risk preferences based on the actual offers they receive from advisors or banks. For detailed investment guidance, always consult your financial advisor.

Monte Carlo Simulation: A More Realistic Forecast

To produce the blue line (and the shaded confidence range), the Toolkit runs a Monte Carlo simulation—a statistical method that repeats a forecast thousands of times, each with randomized input variables based on historical patterns.

The green line in the image above shows a personalized forecast based on the user's selected inputs in the Forecast Calculator. While the blue line uses standardized simulation assumptions, the green line reflects custom simulations that match the user's preferred investment strategy or risk outlook.

Once a user opens the Forecast Calculator, they can adjust the default assumptions—such as average interest rates, inflation volatility, or how much emergency cash is held back. The simulator then reruns the full forecast with these personalized settings.

This technique reflects the reality that we can’t predict the future precisely, but we can describe what’s likely to happen. That’s the essence of probabilistic forecasting.

Conclusion

The simulated forecast within the Vertical City Toolkit brings financial rigour to reserve fund planning. By combining real data, smarter investment modelling, and probabilistic simulation, it offers a more informed, adaptable, and realistic outlook for the long-term health of your building’s finances.

For condo boards and property managers alike, this isn’t just a tool—it’s a window into the future.