The discounted cash flow model for property valuations: quarterly in advance cash flows

Abstract

Purpose

There are three approaches to valuation: cost, market and income. As a subset to the income approach, the investment method looks at the pricing of assets that produce income over an investment holding period. The discounted cash flow (DCF) technique or model can be developed to look at the cash flows on a quarterly basis to reflect the actual receipt of the cash flows. This Education Briefing is a overview of the DCF quarterly model and the need to analyse comparables appropriately. The paper aims to discuss these issue.

Design/methodology/approach

The DCF quarterly model can be seen to produce estimates of market value.

Findings

As the use of DCF is developed and expanded, it is useful to be able to model the cash flows appropriately.

Practical implications

The old adage “value as you analyse” applies to DCF valuations. If valuing quarterly, then the analysis needs to be done on the same basis.

Originality/value

This briefing is an overview of the pricing of freehold rack rented properties in the UK.

Citation

French, N. (2013), "The discounted cash flow model for property valuations: quarterly in advance cash flows", Journal of Property Investment & Finance, Vol. 31 No. 6, pp. 610-614. https://doi.org/10.1108/JPIF-06-2013-0030