Discounted Cash Flow Analysis (DCF) in Real Estate Explained

Discounted Cash Flow Analysis (DCF) in Real Estate Explained // In commercial real estate, the discounted cash flow (DCF) analysis is at the core of property valuations for the vast majority of real estate investors, but because of how real estate deals are typically financed (especially by major private equity firms), the way this is applied in practice often isn't all that straightforward.

And especially since this is one of the most common technical topics that tends to come up within commercial real estate interviews, in this video, I want to break down exactly what a discounted cash flow looks like in the context of a real estate deal, and how this comes into play when investors value a commercial property.

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🕒 Timestamps 🕒
0:00 Introduction
0:45 Defining the DCF
3:36 The Math
7:23 Putting It All Together

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*Nothing in this video should be construed as tax, legal, accounting, valuation, or financial advice or recommendation. All information in this video is intended solely for educational purposes, and you are advised to consult with your own personal professional advisors regarding your personal investment decisions.

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[BreakIntoCRE]

Any other real estate finance terms you'd like to see covered in more detail in a future video on the channel?

[eightonecapital]

Good morning Justin. I just saw your course on Udemy and was wondering if within the course you talk about escalation factors (lease, ground lease, absorption/occupancy). I only ask because i have been tasked with creating a commercial real estate development model for my company and a few of the requirements for the model are lease escalation, ground lease escalation, and occupancy escalation. Thanks in advance!

[hoomanbeing]

5:13 you forgot to subtract the initial investment to make it net. that would be PV only right?

[duncantwyman]

Can you share which one of your courses teaches how to do a discounted cashflow?

[nathankurz]

Most of the analysis I’ve done use the market rate as the discount rate. 15% is wild to me, I don’t know where you’re going to find those market cap rates. Can you give one example of a place where you find 15%?

[naimaahmed]

How to do financial modeling for multiple properties that don’t use interest rates but a preconstruction sales or any property that don’t use interest rate from the bank 🏦. This case is applicable to Muslim countries as they believe interest base loans is anti their faith. In such situations what can you advise. Thank you

[alexh.]

Should we discount NOI or net cash flow?