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Net Present Value

The Net Present Value (NPV) is used to value a series of cash flows over time from investments. These cash flows are both incoming and outgoing. NPV is the net balance between them. For an investment property the outgoing cash flow is its original purchase price and the incoming cash flow is its selling price. That is, the NPV of an investment property is its Present Value (PV) minus its original purchase price.

  • NPV = PV - Original Purchase Price
  • For example, if house was sold for $115,927 (PV) and its original purchase price was $100,000 then its NPV is $15,927. This is just under 16% of its original purchase price.

    NPVs are used to sum the net cash flows generated from multiple investment properties. As such NPVs function as an index of the overall performance of an investment property porfolio.