What is a Discount Rate?
In real estate, the discount rate is a measure of the time value of money. It is used to determine the present value of a future stream of cash flows, such as the expected returns from an investment in a property.
The discount rate is typically expressed as a percentage and is used to calculate the present value of future cash flows by taking into account the expected rate of return on the investment, as well as the length of time over which the cash flows are expected to be received. A higher discount rate results in a lower present value, while a lower discount rate results in a higher present value.
The discount rate is an important factor to consider when evaluating the potential return on an investment in real estate. It is typically used by real estate investors and developers to determine the feasibility of a particular project or to compare the potential returns of different investment opportunities.
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