Discounted Cash Flow in Smart REIA
This section explains how to use discounted cash flow to determine the value of your investment property.
Discounted Cashflow, Net Present Value, Internal Rate of Return (IRR), and Profitability Index are the main factors that you need to consider when you are buying an investment property.
Discounted cash flow tells you if the future cash flows are worth at the given rate of return, but it is not necessary to be the same as you pay them. Discounted cash flow is based on Alternative Rate Of Return/Discount Rate.
1. Edit Alternative Rate Of Return/Discount Rate to 5.0% under the Expected Gains section.
2. Click Update All.
After updating, the value of Discounted Cashflow changes since it is calculated based on the discount of 5.0%.
All the cash flows occur at different times. The longer you have to wait for a particular return the more severely it needs to be discounted and the less it is worth.
Another important thing is that the time value of money, this means that the dollar today is worth more than the dollar tomorrow.
The discounted cash flow is based on the money that it will bring in at the end of the development as well as all the cash flows that it has brought in until that time period.