The Seven Steps

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The Narrative1 DCF develops an estimate of value and/or analyzes a specific price by projecting income and expenses for a 5 to 10 year period, and a resale value. The net cash flows from annual operations and the net proceeds from resale are converted to an estimate of market value through a discount rate. 

There are seven basic steps to preparing a discounted cash flow analysis:

  1. Enter the subject property address and building size

  2. Set the analysis date and length of the investment holding period.

  3. Enter Income data for each unit, or group of similar units. Additionally, one may enter miscellaneous income, such as parking, laundry, etc. 

  4. Enter Expenses. The software allows you to allocate expenses that are passed through to the tenant, if applicable. 

  5. Estimate a Resale Value for the property at the end of the holding period.

  6. Using an appropriate Discount Rate, convert the NOI from the cash flow projections to a present value. 

  7. Optional: Add Mortgage Debt

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