How to read this result
In the default example, present value of lease payments is $345,435.70. 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
Discount annual lease payments received at year-end, growing from the entered first-year income at the selected annual rate. Add the explicitly supplied terminal value discounted at the horizon. Equal growth and discount rates use the annuity limit.
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
- Current annual lease income (USD/year)
- Current annual lease payment. Minimum: 0.
- Annual escalation rate (%/year)
- Contracted/user-entered escalation.
- Remaining term (years)
- Remaining lease years. Minimum: 1.
- Discount rate (%/year)
- User-entered required discount rate. Minimum: 0.01.
- Terminal value (USD)
- Optional explicit residual/renewal value; default zero. Minimum: 0.
Worked example
This example uses the exact prefilled inputs above. Reset defaults to restore this scenario after making changes.
| Item | Default scenario |
|---|---|
| Current annual lease income | $36,000.00 |
| Annual escalation rate | 2.00% |
| Remaining term | 15 |
| Discount rate | 8.00% |
| Terminal value | $0.00 |
| Item | Default scenario |
|---|---|
| Present value of lease payments | $345,435.70 |
| Present value incl. terminal value | $345,435.70 |
Assumptions and limitations
Scenario valuation only. Renewal probability, easement rights, taxes, legal terms and tower-company credit are not modeled automatically.
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
A buyout price can reflect termination rights, credit risk, contract restrictions and transaction costs not included here. The terminal value is not inferred from a multiple.
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
What is the timing of the first lease payment?
The first entered annual payment is received at the end of year one. Growth first affects year two.
What if growth equals the discount rate?
The calculation uses the mathematical limit rather than dividing by zero. The resulting present value remains defined.