What does a positive NPV mean for a real estate investment?

A positive NPV means the property is expected to generate returns that exceed your required rate of return — it creates value above your cost of capital. A negative NPV suggests the investment would underperform relative to your discount rate.

What discount rate should I use for rental property?

Your discount rate should represent your minimum acceptable return, which is typically your cost of financing plus a risk premium. Residential investors commonly use 8% to 12%, while commercial investors often apply 10% to 15%. Higher-risk properties warrant a higher discount rate.

Educational Tool: Results are estimates for informational purposes only and do not constitute financial advice. Always consult a licensed mortgage professional before making real estate decisions. Full Disclaimer

Net Present Value (NPV) Calculator

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NPV Analysis

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What Exactly is Net Present Value (NPV)?

Net Present Value (NPV) measures the profitability of a real estate investment by calculating the current worth of all future cash flows, discounted back to today's dollars. A positive NPV means the investment is expected to generate more value than it costs; a negative NPV means the opposite.

The NPV Formula

NPV is calculated by discounting each future cash flow by the expected rate of return (discount rate) and then subtracting the initial investment:

NPV = Σ [ Ct / (1 + r)^t ] - C0

Ct: Cash inflow during period t (e.g., annual rental income).
r: The discount rate (your minimum required rate of return).
t: The time period (year number).
C0: The initial capital outflow (your purchase price or investment cost).

Frequently Asked Questions (FAQ)

Does a positive NPV mean a property is a good investment?

Generally yes. A positive NPV indicates that the present value of expected cash flows exceeds the initial investment cost, suggesting the property will generate returns above your target discount rate. However, always pair NPV analysis with other metrics like Cap Rate and Cash-on-Cash Return for a complete picture.