A discount rate calculation in real estate is the process of determining the present value of future cash flows associated with a property investment. For instance, if an investor expects to receive $100,000 in rent over the next 10 years and the discount rate is 5%, the present value of these cash flows would be approximately $78,353.
Discount rate calculations are crucial in real estate as they allow investors to compare the potential returns of different investments and make informed decisions. They also help lenders assess the risk associated with a mortgage loan and determine the appropriate interest rate.