Property Valuation
What is the 'discounted cash flow' (DCF) method in Delaware income property valuation?
AA method that discounts the future sale price only
BA method that estimates property value by discounting projected future cash flows (income and reversion) back to present value using a required rate of return✓ Correct
CA method that discounts the property's value based on its age
DA method of reducing the cap rate for risk-adjusted returns
Explanation
The DCF method projects a property's income and reversion (sale proceeds) over a holding period and discounts each cash flow back to present value at an investor's required rate of return (discount rate), providing a more detailed analysis than direct capitalization.
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Key Terms to Know
Capitalization Rate (Cap Rate)
A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.
Gross Rent Multiplier (GRM)A quick valuation metric for income properties calculated by dividing the property price by gross annual rental income.
Option ContractA contract giving the buyer the right, but not the obligation, to purchase a property at a specified price within a specified time period.
Short SaleA sale of real property where the sale proceeds are less than the outstanding mortgage balance, requiring lender approval.
Math Concepts
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