How to read this result
In the default example, initial ground-rent yield is 5.00%. Results describe this input scenario; they are not a recommendation.
Change one assumption at a time to see how it affects the scenario. Compare periods and cost definitions consistently. Negative results show a modeled shortfall; an unavailable ratio needs a valid denominator.
Formula and methodology
Divide first-year ground rent by land value for initial yield. Discount scheduled annual rent, with growth beginning after the first year, across the entered whole-year term. No residual land value is included in the rent present value.
Enter percentages as whole numbers: 5 means 5%. When used as a factor, the calculation divides a percentage by 100. Percentage outputs multiply the final ratio by 100. Calculations retain precision internally; displayed amounts and rates are rounded to two decimals.
Variables and input definitions
- Land value (USD)
- Underlying land value. Minimum: 0.
- Initial annual ground rent (USD/year)
- Year-1 ground rent. Minimum: 0.
- Annual escalation (%/year)
- Lease escalation assumption.
- Lease term remaining (years)
- Remaining term. Minimum: 1.
- Discount rate (%/year)
- User discount rate. Minimum: 0.01.
Worked example
This example uses the exact prefilled inputs above. Reset defaults to restore this scenario after making changes.
| Item | Default scenario |
|---|---|
| Land value | $2,000,000.00 |
| Initial annual ground rent | $100,000.00 |
| Annual escalation | 2.00% |
| Lease term remaining | 20 |
| Discount rate | 7.00% |
| Item | Default scenario |
|---|---|
| Initial ground-rent yield | 5.00% |
| PV of scheduled ground rent | $1,232,005.91 |
Assumptions and limitations
Lease renewal, reversion rights, subordination, credit risk and legal provisions are not automatically valued.
Results describe this input scenario; they are not a recommendation.
The tool uses values you supply. It does not retrieve market prices, verify leases or inspect a property. Results exclude items outside the listed inputs. Review local requirements and the relevant contract when a payment, fee or allocation depends on them.
Common mistakes
Present value of rent is not automatically the value of the leased fee. Reversion, rent resets, credit risk and contract options can be material.
Sources and method references
These references provide context for the method and terminology. They do not endorse this tool or validate your property assumptions.
- Office of the Comptroller of the Currency — Comptroller's Handbook — Commercial Real Estate LendingNOI, direct capitalization, cap-rate valuation and DCF concepts for commercial real estate.
Frequently asked questions
Is land reversion included?
No. The present-value output covers scheduled rent only. A future land reversion requires a separately defined valuation assumption.
Can yield and present value tell different stories?
Yes. Initial yield describes one year relative to current land value. Present value also depends on term, escalation and discount rate.