When you’re trying to decide which income property investment might be your best investment at a given price, you should always discount all future returns from that income property at a rate that is no less than what is being achieved by other similar income properties.

In other words, use the same discount rate to calculate the present value (PV) for Property A (the new property) as is currently achieved for Property B (a similar property). Otherwise you might choose a discount rate lower than the prevailing rate (i.e., over estimate the value of the property) and in turn pay a price that is higher than the apartment market requires.

When selecting a discount rate to calculate present value (PV) and net present value (NPV), just keep in mind not to use a rate that you are not confident will earn you the same return if you invested your money in a similar real estate investment that presents a similar risk.

You can leave a response, or trackback from your own site.