Real estate is valued for its cash flow, both its operating cash flow during the time that you own the property and its likely net sale proceeds when you go to sell the property at some time in the future. Since real estate is purchased today based on its ability to produce cash flow in the future, tools are needed which help calculate the present value of future cash flows. These tools are readily available, are discussed in Tool Kits #2 and #3, and involve the concept of “capitalization”. All capitalization tools convert future income.
