1. What is NPV in Real Estate?

Net Present Value (NPV) is a financial metric that calculates the present value of future cash flows from a property, helping investors compare the profitability of renting versus selling.

2. How the Calculator Works

The calculator uses the NPV formula:

Where:

• \( Cash\ Flow_t \) — Net cash flow at time t (rental income or sale proceeds)
• \( r \) — Discount rate (your required rate of return)
• \( t \) — Time period (usually years)

Explanation: Future cash flows are discounted to account for the time value of money - money available now is worth more than the same amount in the future.

3. Importance of NPV Analysis

Details: NPV helps property owners make data-driven decisions about whether renting or selling will generate more value over time, considering all costs and income streams.

4. Using the Calculator

Tips: Enter expected annual cash flows (negative for expenses, positive for income) as comma-separated values. Use a realistic discount rate (typically 5-10% for real estate).

5. Frequently Asked Questions (FAQ)

Q1: What discount rate should I use?
A: Typically 5-10% for real estate. Higher for riskier investments, lower for stable properties.

Q2: How do I account for property sale?
A: Include the net sale proceeds as the final cash flow in your series.

Q3: Should I include mortgage payments?
A: Yes, include all cash inflows and outflows to get an accurate picture.

Q4: What if NPV is negative?
A: Negative NPV suggests the investment may not meet your required return threshold.

Q5: How does this compare to cap rate?
A: NPV provides a more comprehensive analysis by considering the time value of money and all cash flows over time.