Friday, June 26, 2009

investment value and time

Real estate investment decisions, like all investment decisions, involve present costs and the value of future benefits (usually quantified as cash flow), however, in finding the value of future benefits we cannot simply add them up. A moment is thought makes it clear that benefits 10 years from now, for example, are not as valuable as the same benefits received immediately. So we must have a way of converting future benefits to their equivalent value in immediate cash. the generally accepted method for doing this conversion is Known as discounting. This procedure is fundamental to good investment valuation when a long time horizon is involved, such as in real estate. Discounting is explained in this blog. Suffice it to say now that the value of future benefits from a real estate investment must be equated through discounting to an equivalent current value, which can then be compared to the immediate cost.

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