How Does the Perpetuity Formula Apply to Real Estate?

Perpetuity Formula

The perpetuity formula calculates the present value of an infinite series of cash flows, typically used in real estate and finance to value assets with constant income streams. The formula is:

PV = C / r

where PV is the present value, C is the annual cash flow, and r is the discount rate (or required return).

Application to Real Estate:

• Property Valuation – Used to estimate the value of properties generating consistent rental income.
• Ground Leases – Applied to value land leases with perpetual cash flows.
• REITs and Investments – Helps determine the value of long-term real estate income streams.