Net Present Value (NPV)

Net present value brings every future cash flow of a deal back to today's dollars at a chosen required return, totals them and takes off the purchase cost. A positive NPV means the investment beats that required return. It is the full answer that a gross rent multiplier approximates with a single ratio.

GRM counts every year of rent as equal. NPV does not. At an 8% discount rate, $48,000 of rent received ten years from now is worth about $22,200 today, and ten years of $48,000 is worth about $322,000, not $480,000. That is before a single expense or the eventual sale enters the model.

Two properties at the same GRM can have very different NPVs if one has rents climbing faster, lower expenses or a better exit. Use GRM to shorten the list and NPV, or its companion internal rate of return, to compare the few that remain on the same terms.

Further reading: Net Present Value (NPV) on Wikipedia.