From the course: Pre-investing: Before Investing in Real Estate

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Discount rate

Discount rate - Microsoft Excel Tutorial

From the course: Pre-investing: Before Investing in Real Estate

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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 cashflows 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 a 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 want to do is to also factoring things like risks and opportunity costs so that the…

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