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This time, it was distributed on CONSPIRIT's official channel on YOUTUBE.
Episode 27: Improve your QOL through real estate management!
I would like to send you the contents.

Well, here is the topic we will be discussing today.
"DCF method and discount rate"is about!
When appraising real estate,
This is also important in measuring investment efficiency.

Some people say they always use it when deciding on properties to purchase,
Some of you may be hearing this for the first time.
This time it will be for a slightly intermediate level,
Regarding this “DCF method and discount rate”,
I would like to talk briefly.

So let's get started!

When you judge the profitability of income-generating real estate
You probably use "yield".
This discount rate is generally regarded as a type of yield.
There is no problem.

In addition, what must be considered in conjunction with this yield is:
This is about real estate appraisal.
This is a calculation method for evaluating and determining the price of real estate.

Broadly divided
1. Profit return method;
2. Cost method;
3. Transaction case method

I mentioned that there are three evaluation methods.

Among them, currently the most popular“Profit return method”but,
Strictly speaking, this method is divided into two.

One is that it is simple and easy to understand.
used daily"Direct reduction method".
The other method is to use the current “discount rate”."DCF method"is.

What are “direct reduction method” and “DCF method”?

As the name suggests, the "direct reduction method"
Divide the income earned from the property by the capitalization rate,
This is a simple evaluation method to determine the price of a property.

On the other hand, the "DCF method"
Based on the premise that the value of real estate changes over time,
The net income earned during the holding period of the property;
Expected price at time of sale
This is a calculation method that rebates back to the current value.

To put it very roughly,
The "direct reduction method" does not take into account
Evaluation methods that include the time value of things and money
This is the "DCF method," and the coefficient used there is the "discount rate."

Comparison of “direct reduction method” and “DCF method”

Example) Rent: 80,000 yen/month
Return rate: 5%

Let's evaluate this property using the "direct capitalization method" and calculate the amount.

80,000 yen x 12 months ÷ 5% = 19.2 million yen

Therefore, under the "direct capitalization method", this property is
The appraisal will be 19.2 million yen.

Next is the calculation using the "DCF method".

Example) Rent: 80,000 yen/month
Discount rate: 5%
Estimated sales amount in 5 years: 15 million yen

1st year: 80,000 yen x 12 = 960,000 yen
2nd year: 960,000 yen ÷ 105% = 910,000 yen
3rd year: 910,000 yen ÷ 105% = 860,000 yen
4th year: 860,000 yen ÷ 105% = 810,000 yen
5th year: 810,000 yen ÷ 105% = 770,000 yen

*Calculations are rounded down to the nearest thousand yen.

The total rent after 5 years is
The amount will be 4.31 million yen.

Next, we apply a 5% discount rate to the estimated sales amount and calculate it.

15 million yen ÷ 105% ÷ 105% ÷ 105% ÷ 105% ÷ 105% = 11.75 million yen

Therefore, the appraised value of this property using the DCF method is:
4.31 million yen + 11.75 million yen = 16.06 million yen

That's what it means.

The only difference is the evaluation method.
Even properties with the same value can vary in appraised value.

As I talked about in the video on the time value of money,
Money earned in the future is more uncertain than money earned now.
The ``discount rate'' is used to discount that amount.

That's why,
This is not a matter of which evaluation method is good or bad, but
These can be used as needed
The most important thing is to have knowledge.

Learn about real estate management

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