Property Investment Basics, Part 2.
Present Value. A fundamental concept in real estate investing is that a dollar today is worth more than a dollar in the future. Therefore a “discount rate” is used to determine the present value of an income stream. In computing the present value of a dollar, the discount factor is the value today of a $1 received in the future. The discount rate is the percentage return that an investor would require in order to accept the delay in receiving the payment. Many investors assume that discount rates are static numbers, but using a single number over time and for different types of property is a simplification. Next: Applying a Cap Rate.