NPV–calculating the Net Present Value
Learning how to calculate the NPV–Net Present Value–is one of many valuable skills to have if you want to invest in real estate. The NPV helps a real estate investor analyze a properties profitability. Although, many investors consider the NPV to be unreliable. The NPV relies on projected future cash inflows which is impossible to accurately forecast. Even when an investor realizes the NPV’ reliability, it is still calculated because it provides a guess estimate. It would be beneficial to be as realistic as possible when inputting future cash flow values. A good way to do this would be by guessing a high and low realistic amounts, and using the number between the two. However, a good way to ensure your being realistic would be by keeping the high and low amounts as close together as possible.
I suggest using the built in formula in Excel, or other popular spreadsheet programs to calculate the NPV. Here is the formula used for calculating the NPV: =NPV(discount rate, cash flow values).
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