From the course: Real Estate Analysis Foundations

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Discount rate

Discount rate - Microsoft Excel Tutorial

From the course: Real Estate Analysis Foundations

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Discount rate

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- But what is the actual discount rate, the rate that we're going to discount the future cash flows back? There are two different ways that a lot of people look at it. For what you may have heard out there, if you've ever heard about discount rates, is you're going to hear this concept called the weighted average cost of capital. And that's something that a lot of firms use as a starting point to calculate their discount rate, which is just how much did it cost them to borrow or to get that capital that they're now considering making this investment with. And that could be if it's from a bank, there's an interest rate on that loan that they're getting, or if they have investors, there's some kind of a minimum return that they're expected to give the investors. And the weighted average between the two gives them their weighted average cost of their capital. But then, for the discount rate, usually what people wanta do is to also factor in things like risk, and opportunity costs so that…

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