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

Ataguba Joseph Obaje ()
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Ataguba Joseph Obaje: Department of Estate Management and Valuation The Federal Polytechnic Idah, Kogi State Nigeria

Real Estate Management and Valuation, 2021, vol. 29, issue 2, 52-70

Abstract: While 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.

Keywords: scenario analysis; rental growth; freehold investment property; short-cut DCF; equivalent yield (search for similar items in EconPapers)
JEL-codes: C53 D46 R30 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:vrs:remava:v:29:y:2021:i:2:p:52-70:n:5

DOI: 10.2478/remav-2021-0013

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