Discounted After-Tax Cash Flow

If you really want to know what an investment will get you in the end...the end-end...you’ll want to assess the value of the investment using a discounted method, and you’ll want to take into account how it’ll be taxed. Verrrry thorough.

The discounted after-tax cash flow method is a way to assess the value an investment by taking into account the time value of money, over time, and the tax bracket at which it’ll be taxed. This method of predicting value in a company is often used in large transactions, like during real estate valuation, to determine whether or not the investor should invest in it.

Like...how much can we raise rent in the next decade? How much will interest rates be when our fixed rate converts to floating? What percent of the building are we most likely to be able to rent?

Since DATCF takes into account all property taxes and up front financing costs, the required rate of return, and taxes, it gives the investor a really solid estimate for the present value of the investment. If the present value (the benefit) is more than the cost of the investment (and looks good relative to other investments that could be taken with that money), then it might just be worth the investment.