The value of an asset depends on its underlying value i.e., its ability to generate future cash flows. However, the future comes with many uncertainties and the ability to estimate future cash flows is subject to assumptions, which will often differ with reality. In spite of those limitations, there were two prominent methods of valuing real estate.

1. Asset Resale Value (ARV), a strategy that often used in a fix and flips or hold and improve the asset value. This method depends on an estimate of future price increase with an improvement or over time or with the influence of other factors.
2. Income-based approach depends on assets ability to generate future cash flow and often measured with Capitalization rate. If the intention to retain the asset is over the long-term, or the cost of capital is significant, the time value of money plays a critical role and time value of money (NPV and IRR) principles need to be applied.

Our income-based valuation primarily focuses on the deal’s ability to generate positive cash and is based on expected income over the next five years. Our investment analysis tool is to help you understand the income aspects based on your assumptions for a limited time frame i.e., five years.

This is neither advice to buy or sell nor a promise on the expected returns.