What is Present Value?

What is Present Value?

Present value refers to the current value of a future stream of income or cash flows generated by a property, discounted back to today's dollars using a specific rate of return or discount rate. This financial concept is used to determine how much future income from the property is worth in today's terms, taking into account the time value of money—the principle that a dollar today is worth more than a dollar in the future due to its potential earning capacity. Present value calculations are essential in evaluating real estate investments, comparing the worth of properties with different income potentials and timelines, and making informed purchasing, selling, or financing decisions.