NET PRESENT VALUE
What Does Net Present Value Really Mean?
In a hurry:
Apply it today:
NPV equals the value created (or lost), in today's dollars, relative to one's investment
Different from PV which only estimates the value today
Harder to apply as a comparative unit of measure than %-based return metrics
By the end of this episode you’ll learn:
What does NPV mean in corporate finance vs real estate?
How to calculate NPV
How to apply NPV
Why other return metrics may be preferred in real estate
Have a few minutes:
Net Present Value carries plenty of weight in corporate finance and capital budgeting decisions. However, for most real estate investors, NPV isn’t applied as consistently.
This has something to do with most investor’s understanding of what NPV really means to them. And this has something to do with how useful NPV is to comparing investment alternatives in real estate. It is this last point that makes NPV the black sheep of return metrics in real estate.
Not that NPV isn’t valuable or constructive. But, given the wide variety of investment objectives, capital sources and return requirements, percentage-based return metrics like cash-on-cash return and internal rate of return are preferred by many.