Perpetuity: Difference between revisions

Valuing real estate with a [[capitalization rate]] or cap rate (the convention used in [[real estate finance]]) is a more current example . Using a cap rate, the value of a particular real estate asset is either the [[net income]] or the [[net cash flow]] of the property, divided by the cap rate. Effectively, the use of a cap rate to value a piece of real estate assumes that the current income from the property continues in perpetuity. Underlying this valuation is the assumption that rents will rise at the same rate as [[inflation]]. Although the property may be sold in future (or even the very near future), the assumption is that other investors will apply the same valuation approach to the property.