Property Valuation
What is a discounted cash flow (DCF) analysis in real estate?
AA method to calculate tax savings
BA method projecting future cash flows and discounting them to present value to estimate property worth✓ Correct
CA comparison of discounted property prices
DA bank's loan approval calculation
Explanation
DCF analysis projects a property's future cash flows (NOI and reversion/resale proceeds) and discounts them to present value using a required rate of return (discount rate) to estimate value. It is used for complex income properties.
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Key Terms to Know
Net Operating Income (NOI)
The annual income generated by an income-producing property after subtracting operating expenses, but before debt service.
Capitalization Rate (Cap Rate)A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.
Comparable Sales (Comps)Recently sold properties similar in size, condition, and location used by appraisers and agents to estimate a property's market value.
AppraisalA professional estimate of a property's market value prepared by a licensed or certified appraiser.
Math Concepts
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