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Synthesis of Short-Cut DCF Appraisal and Spreadsheet Iteration of Freehold Rental Growth Rates Across Specific Valuation Epochs

Synthesis of Short-Cut DCF Appraisal and Spreadsheet Iteration of Freehold Rental Growth Rates... AbstractWhile the use of simple deterministic models to calculate rental value growth (RVGrowth) rate of reversionary freeholds across epochs prior to upward rent review appears illusive, literature evidence of the synthesis between short-cut DCF valuation and Solver tools in a spreadsheet does not constitute an exhaustive list of solutions. This study examined alternative spreadsheet and iteration tools that can determine RVGrowth rate of freehold investment properties across rent review epochs. With recourse to a hypothetical case of a freehold investment property, this experimental study identified the mathematical composition of RVGrowth in an explicit DCF framework, performed short-cut DCF Valuation and equivalent yield calculation at specific epochs prior to and including the full reversion; as well as using Goal Seek to calculate RVGrowth across all epochs prior to- and including the full reversion. Excel® Solver and Goal Seek, as well as the graphing/root-solving tool in Kyplot® were found to feasibly produce identical results for RVGrowth rate. This is among the limited studies that identified and researched the veracity of alternative tools for RVGrowth rate iteration. The value of this study is the awareness of alternative analytical tools avail freehold investors who desire knowledge of RVGrowth rate when making purchase-, hold-, and sales decisions. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Real Estate Management and Valuation de Gruyter

Synthesis of Short-Cut DCF Appraisal and Spreadsheet Iteration of Freehold Rental Growth Rates Across Specific Valuation Epochs

Ataguba, Joseph Obaje
Real Estate Management and Valuation , Volume 29 (2): 19 – Jun 1, 2021
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Publisher
de Gruyter
Copyright
© 2021 Joseph Obaje Ataguba, published by Sciendo
ISSN
1733-2478
eISSN
2300-5289
DOI
10.2478/remav-2021-0013
Publisher site
See Article on Publisher Site

Abstract

AbstractWhile the use of simple deterministic models to calculate rental value growth (RVGrowth) rate of reversionary freeholds across epochs prior to upward rent review appears illusive, literature evidence of the synthesis between short-cut DCF valuation and Solver tools in a spreadsheet does not constitute an exhaustive list of solutions. This study examined alternative spreadsheet and iteration tools that can determine RVGrowth rate of freehold investment properties across rent review epochs. With recourse to a hypothetical case of a freehold investment property, this experimental study identified the mathematical composition of RVGrowth in an explicit DCF framework, performed short-cut DCF Valuation and equivalent yield calculation at specific epochs prior to and including the full reversion; as well as using Goal Seek to calculate RVGrowth across all epochs prior to- and including the full reversion. Excel® Solver and Goal Seek, as well as the graphing/root-solving tool in Kyplot® were found to feasibly produce identical results for RVGrowth rate. This is among the limited studies that identified and researched the veracity of alternative tools for RVGrowth rate iteration. The value of this study is the awareness of alternative analytical tools avail freehold investors who desire knowledge of RVGrowth rate when making purchase-, hold-, and sales decisions.

Journal

Real Estate Management and Valuation – de Gruyter

Published: Jun 1, 2021

Keywords: scenario analysis; rental growth; freehold investment property; short-cut DCF; equivalent yield; C53; D46; R30

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