1. What is NPV in Real Estate?

Net Present Value (NPV) compares the current value of money received now (selling) versus money received over time (renting). It accounts for the time value of money - that a dollar today is worth more than a dollar in the future.

2. How the Calculator Works

The calculator uses the NPV formula:

Where:

• \( Cash\ Flow_t \) — Net rental income in year t
• \( r \) — Discount rate (your opportunity cost of capital)
• \( t \) — Time period (years)
• \( n \) — Total time horizon

Explanation: The calculator compares the NPV of selling (immediate lump sum) versus renting (stream of future payments discounted to present value).

3. Key Considerations

Important Factors: This calculator provides a financial comparison only. Other considerations include:

• Property appreciation potential
• Tax implications (capital gains vs rental income)
• Maintenance responsibilities as a landlord
• Local market conditions
• Personal circumstances and liquidity needs

4. Using the Calculator

Tips:

• Use realistic rental income estimates (research comparable properties)
• Discount rate should reflect your alternative investment returns (typically 5-8%)
• Include all expenses (property management, maintenance, vacancies, taxes, insurance)
• Consider multiple time horizons (5, 10, 15 years)

5. Frequently Asked Questions (FAQ)

Q1: What's a good discount rate to use?
A: Typically 5-8%. Use higher rates if you have good alternative investments, lower if you're conservative.

Q2: Should I include mortgage payments?
A: No, this calculator compares gross proceeds. Mortgage is a financing decision separate from the sell/rent decision.

Q3: What about property appreciation?
A: This calculator focuses on cash flows. For appreciation, you'd need to add estimated future sale price to the renting scenario.

Q4: How accurate is this calculator?
A: It provides a simplified financial comparison. Actual results depend on many variables including unexpected expenses and market changes.

Q5: What if I plan to sell later?
A: For a "sell later" scenario, calculate NPV of renting until sale year plus discounted sale proceeds, then compare to selling now.