1. What is NPV in Real Estate Decisions?

Net Present Value (NPV) compares the current value of money received now versus money received in the future, accounting for the time value of money. For real estate, it helps determine whether renting or selling a property would yield better financial returns.

2. How Does the Calculator Work?

The calculator uses the NPV equation:

Where:

• \( Cash Flow_t \) — Rental income each year or sale proceeds at end period
• \( r \) — Discount rate (your required rate of return)
• \( t \) — Time period in years

Explanation: The equation discounts future cash flows to present value, allowing comparison between the lump sum from selling versus the income stream from renting.

3. Importance of NPV Calculation

Details: NPV provides an objective financial metric to compare different investment strategies, accounting for opportunity costs and inflation.

4. Using the Calculator

Tips: Enter realistic discount rate (typically 5-10%), time horizon, expected sale price, and annual rental income. Consider maintenance costs and taxes in your rental income estimate.

5. Frequently Asked Questions (FAQ)

Q1: What discount rate should I use?
A: Typically 5-10%. Higher rates favor selling (future rent is discounted more heavily).

Q2: Should I include property taxes and maintenance?
A: Yes, these reduce effective rental income. Use net rental income after expenses.

Q3: What about property appreciation?
A: This calculator compares renting vs selling now. For long-term holding analysis, include projected sale price.

Q4: How accurate is this calculation?
A: It provides a framework but actual results depend on accurate inputs and market conditions.

Q5: What other factors should I consider?
A: Tax implications, liquidity needs, personal circumstances, and local market trends.