Questions about DCF
Hello BPers. I'm a young investor trying to understand the education side better before going after my first deal.
I've been reading Frank Gallinelli's book about the key things everything investor needs to understand about cash flow and ice reached the DCF portion. I've been reading as much as I can to try to understand the math behind it and how it can actually help me determine if a deal is a good investment and I'm a little confused.
So growth rate is the number you utilize after looking at different numbers of other real estate that has been sold in the past to determine the rate that the market can potentially grow assuming the growth is still an upwards growth pattern?
And discount rate is the added percentile of other types of investments if your money were to be there instead?
And to better understand the comparison between the two, when you do the math if the discounted rate still allows a positive difference based on the determine growth rate then the investment should be considered?
How does this work with inflation? And this doesn't seem to account for the fact that this is assuming your money stays in that investment ONLY. What if my cash flow is invested into another property for greater returns?