Looks like Argus' standard is 10% but that seems kinda high? Does discount rate = the cap rate you use? I've been using 8% as it seems like in this lower interest rate environment that makes more sense then 10% (assuming discount rate = opportunity cost?)
Interested to hear what you guys have been using!
10% is just set there as the default placeholder. Rarely will you see 10% used on a stabilized asset, unless its in a crappy market. Even more rare for the cap rate to be that high. Typically the DR rate is higher than the exit cap unless its theres an extremely low-risk asset. These rates vary a lot depending on the market/asset class.
So the Discount rate would be the opportunity cost of a similar risk asset correct? I've been using 8% but just saw a model where someone used 4.5% as a discount rate which seemed insanely low. How do you gauge the discount rate?
Whatever gets you to your number ;)
Multi tenant - 100-300 bps above the going in cap rate. Highly dependent on tenant quality, property type and how long you're projecting out.
STNL to a Inv. grade credit tenant on a 20 year lease - 0-50 bps over the going in cap. Most investors don't use Argus in this scenario.
Holy crap I've been using wayyyy to high of a discount rate.
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