I know we have some smart people here so looking to see if I can get an idea of current valuation on an item. This would be a guaranteed 45 year lease payment of between $800 and $1000 a month. There are 9 separate 5 year leases with a 10% increase each 5 years. Total valuation for 45 years based on $800/mo with the 10% escalators is $651,814, at $1000/mo with the 10% escalators total would be $814,876. Anyone have a rough guess of current value if sold today?
That's why I was trying to get someone else to do the work for me. I felt the pressure building in my brain and figured I better stop.
I haven't done this in awhile, but is this just net present value stuff? You can do that in Excel. Below are the min/max lease costs for 45 years. Then there are 10 Net Present Values, calculated using 1 to 10 percent discount rates. How you discount it is up to you, but Excel says that it is worth somewhere between $16k and $52k. Is that what you were looking for? 1 $800.00 $1,000.00 2 $800.00 $1,000.00 3 $800.00 $1,000.00 4 $800.00 $1,000.00 5 $800.00 $1,000.00 6 $880.00 $1,100.00 7 $880.00 $1,100.00 8 $880.00 $1,100.00 9 $880.00 $1,100.00 10 $880.00 $1,100.00 11 $968.00 $1,210.00 12 $968.00 $1,210.00 13 $968.00 $1,210.00 14 $968.00 $1,210.00 15 $968.00 $1,210.00 16 $1,064.80 $1,331.00 17 $1,064.80 $1,331.00 18 $1,064.80 $1,331.00 19 $1,064.80 $1,331.00 20 $1,064.80 $1,331.00 21 $1,171.28 $1,464.10 22 $1,171.28 $1,464.10 23 $1,171.28 $1,464.10 24 $1,171.28 $1,464.10 25 $1,171.28 $1,464.10 26 $1,288.41 $1,610.51 27 $1,288.41 $1,610.51 28 $1,288.41 $1,610.51 29 $1,288.41 $1,610.51 30 $1,288.41 $1,610.51 31 $1,417.25 $1,771.56 32 $1,417.25 $1,771.56 33 $1,417.25 $1,771.56 34 $1,417.25 $1,771.56 35 $1,417.25 $1,771.56 36 $1,558.97 $1,948.72 37 $1,558.97 $1,948.72 38 $1,558.97 $1,948.72 39 $1,558.97 $1,948.72 40 $1,558.97 $1,948.72 41 $1,714.87 $2,143.59 42 $1,714.87 $2,143.59 43 $1,714.87 $2,143.59 44 $1,714.87 $2,143.59 45 $1,714.87 $2,143.59 1% $42,220.67 $52,775.84 2% $33,308.26 $41,635.33 3% $38,494.49 $48,118.12 4% $36,167.19 $45,208.99 5% $33,058.65 $41,323.31 6% $29,165.64 $36,457.05 7% $25,254.86 $31,568.58 8% $21,760.12 $27,200.16 9% $18,810.88 $23,513.60 10% $16,405.06 $20,506.33
Thanks but I think you calculated at $800 and $1000 a year instead of a month. The $800 a month value is $651,814 total over 45 years and $814,768 for the $1000 a month.
Obviously you are correct; luckily it wasn't a test. 1 $9,600.00 $12,000.00 2 $9,600.00 $12,000.00 3 $9,600.00 $12,000.00 4 $9,600.00 $12,000.00 5 $9,600.00 $12,000.00 6 $10,560.00 $13,200.00 7 $10,560.00 $13,200.00 8 $10,560.00 $13,200.00 9 $10,560.00 $13,200.00 10 $10,560.00 $13,200.00 11 $11,616.00 $14,520.00 12 $11,616.00 $14,520.00 13 $11,616.00 $14,520.00 14 $11,616.00 $14,520.00 15 $11,616.00 $14,520.00 16 $12,777.60 $15,972.00 17 $12,777.60 $15,972.00 18 $12,777.60 $15,972.00 19 $12,777.60 $15,972.00 20 $12,777.60 $15,972.00 21 $14,055.36 $17,569.20 22 $14,055.36 $17,569.20 23 $14,055.36 $17,569.20 24 $14,055.36 $17,569.20 25 $14,055.36 $17,569.20 26 $15,460.92 $19,326.12 27 $15,460.92 $19,326.12 28 $15,460.92 $19,326.12 29 $15,460.92 $19,326.12 30 $15,460.92 $19,326.12 31 $17,007.00 $21,258.72 32 $17,007.00 $21,258.72 33 $17,007.00 $21,258.72 34 $17,007.00 $21,258.72 35 $17,007.00 $21,258.72 36 $18,707.64 $23,384.64 37 $18,707.64 $23,384.64 38 $18,707.64 $23,384.64 39 $18,707.64 $23,384.64 40 $18,707.64 $23,384.64 41 $20,578.44 $25,723.08 42 $20,578.44 $25,723.08 43 $20,578.44 $25,723.08 44 $20,578.44 $25,723.08 45 $20,578.44 $25,723.08 1% $506,647.97 $633,310.14 2% $401,273.66 $501,592.19 3% $323,711.28 $404,639.16 4% $265,804.20 $332,255.28 5% $221,946.70 $277,433.40 6% $188,249.02 $235,311.29 7% $161,985.49 $202,481.86 8% $141,226.98 $176,533.72 9% $124,594.22 $155,742.78 10% $111,090.89 $138,863.61
I think that time you took one years worth of lease payments and then just calculated a 10% increase every 5 years. The first 5 years would be at $800 or $1000 per month or somewhere in between but lets figure we came to an agreement at $900 a month. That would be $10,800 the first year which makes it $54,000 the first 5 years. It then increases to $990 per months so $11,880 per year or $59,400 for years 5-10, it then does that increasing every 5 years by 10%, $65,340 years 10-15, etc. Maybe around $750,000 total value after 45 years, I was just trying to figure out a current day value of something that would be worth $750,000 in 45 years. $200K? $300K? $100K?, The land has value also but I was just calculating the cellular tower contract.
I think what phubbadaman put together addresses what you were looking for. If you look at the bottom part of his list, it's saying that depending on the discount rate you assume (he's showing between 1% and 10%), the lease would be worth anywhere between ~$100k and ~$500k if the initial monthly payment is $800, and between ~$150k and ~$650k if the intial monthly payment is $1,000.
Yeah, I was just showing what I put in excel with all the numbers. With an $800 monthly lease, you make $9,600 in the each of the first five years. Then it bumps up 10%, so on and so forth for 45 years. In order to determine the present value of future money, you use a discount rate. The discount rate just represents risk/uncertainty of receiving the payment and also the time value of money. So 1-45 show your expected yearly lease payments. Then, it is up to you to decide on a discount rate. I have no idea what an appropriate number would be. Are interest rates you can get from a bank appropriate? What is the Fed charging banks to borrow money, perhaps that is more appropriate? Maybe you are getting this lease from a company that isn't well established and you aren't sure if they have the ability to pay for 45 years. All of these would affect your discount rate. I don't know what the appropriate number to use would be, so I just used 1% through 10% to get the present value. So if you use a 1% discount rate and get $800 month lease, it would be worth $506,647.97, plus whatever the land is worth. If you use a 7% discount rate and get $1000 month lease, it would be worth $202,481.86, plus whatever the land is worth. It is up to you and whoever you are trying to sell to to determine the appropriate discount rate, but given the numbers above, your value is somewhere between $111,090.89 (10% discount with $800 lease) and $633,310.14 (1% discount with $1000 lease).
Appreciate the help and I now understand your calculations, thanks for explaining. We are probably going to just keep the property after running the numbers. Figure it will give the kids something to retire on, at the end of the lease in 45 years they will be between 63 and 67.
