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Real Estate DCF (Discounted Cash Flow)
Estimates the value of an income property by projecting annual NOI, capitalizing a terminal value at an exit cap rate, and discounting both back to present value. Inputs are Year 1 NOI, an NOI growth rate, the hold period, exit cap rate, selling costs, and a discount rate.
By Devon Coombs, CPA, MBA · Assistant Teaching Professor of Finance, Santa Clara University · Reviewed October 2026
From the author: Devon Coombs, CPA, MBA teaches finance at Santa Clara University and works with corporate teams on practical AI.
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How do you value a property using discounted cash flow?
Discount each year’s projected property cash flow and the net sale proceeds back to today, then add them. This introductory real estate DCF uses net operating income (NOI) as a simplified cash-flow proxy, before debt and taxes. A full underwriting model also deducts capital spending and other cash costs.
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Discounted Cash Flow (DCF) Calculator
Assumptions
Projected cash flows
| Year | NOI | PV @ 8% |
|---|---|---|
| Year 1 | $1,498,425 | $1,387,431 |
| Year 2 | $1,543,378 | $1,323,198 |
| Year 3 | $1,589,679 | $1,261,939 |
| Year 4 | $1,637,369 | $1,203,515 |
| Year 5 | $1,686,491 | $1,147,797 |
| Terminal value (Yr 6 NOI $1,737,085 ÷ 6.25%) | $27,793,364 | |
| Net sale proceeds (after 2% selling cost), PV | $18,537,383 | |
PV of cash flows
$6,323,879
5 years of NOI
PV of sale
$18,537,383
reversion
DCF Value
$24,861,262
at 8% return
Understand the numbers
A worked example, step by step
Enter $500,000 Year 1 NOI, 0% NOI growth, a five-year hold, a 5% exit cap rate, 2% selling costs, and an 8% discount rate.
This fixed teaching example is separate from your saved calculator inputs. Enter the assumptions above to reproduce it.
- With no growth, years 1–5 each have $500,000 of NOI. Their combined present value at 8% is about $1,996,355.
- The sale uses next-year NOI: $500,000 ÷ 5% = $10,000,000 terminal value. Deduct 2% selling costs to get $9,800,000 of net sale proceeds.
- Discount the sale five years: $9,800,000 ÷ 1.08⁵ ≈ $6,669,715. Add the operating present value for a total modeled value of about $8,666,070.
About $8.67 million modeled property value
What the result tells you
The exit cap rate sets the future sale price; the discount rate converts future dollars into today’s value. They perform different jobs. The final year includes both that year’s operating income and the discounted net sale proceeds.
Assumptions to check
Cash flows occur at year-end, and the exit cap rate uses forward NOI for the year after the hold. This simplified calculator omits capital expenditures, reserves, leasing costs, debt, and investor taxes. It estimates gross asset value from the modeled inflows, not NPV after subtracting a purchase price. Use the unlevered DCF or acquisition model in the calculator directory for more detailed underwriting.
Try one change
Raise only the exit cap rate from 5% to 6%. The net sale proceeds fall to about $8.17 million and the modeled present value falls to about $7.55 million. A higher cap rate means a lower price for the same NOI.
Test it in the calculator ↑Learn the concept
This calculator comes from the free Real Estate Finance course, where the concept is taught with readings, worked examples, and practice questions.
When to use this measure
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Built by Devon Coombs, CPA, MBA, Assistant Teaching Professor of Finance at Santa Clara University.