Updated over 6 years ago on . Most recent reply
Discount Rate - DCF analysis
Something that has always made me curious is the discount rate real estate investors use in their DCF analysis. If you are a buy and hold investor, due you use the stock market average (e.g. S&P500, index fund, etc.) or do you use the risk free rate from a bond/treasury. If there has never been a 20 year period where the bond market has out performed the stock market, then the stock market would have higher short term volatility, but be truly the better long term risk free rate.
Conversely, if you plan to possibly sell the property in less than 10 years do you assume a discount rate more similar to the bond/treasury market.
Knowing in either scenario, said investor should be doing an analysis to determine which path/option is best and that discount rate is a simplified margin of safety in an investment.