Discounted Cash Flow (DCF) Analysis

The DCF Framework

1. Project annual cash flows over the hold period — typically 5 to 10 years for CRE
2. Model the terminal value — what the property sells for at the end of the hold (usually NOI in the final year ÷ exit cap rate)
3. Subtract estimated selling costs from terminal value to get net sale proceeds
4. Discount all future cash flows + terminal value back to present at the chosen discount rate
5. Sum the discounted cash flows = present value of the property
6. Compare to current asking price to determine if the deal pencils at the required return

Key DCF Inputs

• Going-in NOI — Trailing 12-month actual or pro forma year-one NOI
• Rent growth assumptions — Annual rent increases by year and by tenant lease structure
• Expense growth assumptions — Annual operating expense increases (often higher than rent growth in Florida due to insurance)
• Vacancy assumptions — Lease-up, rollover vacancy, retention rates
• Capital expenditures — Year-by-year capex including TI/LC for new leases, major systems replacement, value-add capex
• Refinance assumptions — When (if at all) the property refinances, at what rate and LTV
• Exit cap rate — Cap rate at sale (typically 25–75 bps wider than going-in cap rate for sensitivity)
• Hold period — How long the property is held — typically 5 or 10 years
• Discount rate — The required rate of return; typically the unlevered or levered IRR target

DCF vs. Cap Rate — Different Tools for Different Questions

• Cap Rate — Single-moment snapshot. NOI ÷ Property Value. Used to value property, price acquisitions, compare deals quickly.
• DCF — Multi-year integration of the full investment thesis. Used to validate going-in pricing, project IRR, run sensitivity analysis.
• The two are complementary — sophisticated investors use both. Cap rate to enter, DCF to confirm.

Florida-Specific DCF Considerations

• Property tax reassessment at sale — Florida property tax fully resets at sale to the purchase price. Year-one expense often spikes vs. seller historicals — model this in
• Insurance trajectory — Florida insurance premium increases have far outpaced general inflation. DCF expense growth assumptions should reflect this
• Hurricane CapEx — Replacement reserves should be larger than national averages to reflect Florida wear patterns
• Exit cap rate sensitivity — Hospitality and certain retail in Florida face structural cap rate volatility — stress-test exit cap rates aggressively
• No state cap gains tax — Florida investors can model sale proceeds without state tax leakage

What is discounted cash flow analysis in commercial real estate?

DCF analysis values commercial real estate by projecting future cash flows over a defined hold period (typically 5–10 years), modeling a terminal sale at an exit cap rate, and discounting all future cash flows + terminal value back to present at a required rate of return. It is the most rigorous CRE valuation methodology.

How is DCF different from cap rate valuation?

Cap rate is a single-moment snapshot (NOI ÷ Value); DCF integrates the full hold period including year-by-year rent growth, expense growth, capex, lease rollover, refinance, and the eventual sale at exit cap. Cap rate prices acquisitions; DCF validates the full investment thesis.

What discount rate should I use in a CRE DCF model?

The discount rate is typically the required unlevered or levered IRR for the deal — driven by the risk profile (core 7–10%, value-add 13–17%, opportunistic 17–25%). Some investors use the weighted average cost of capital. The choice meaningfully affects the calculated present value.

What exit cap rate should I assume in a DCF?

Exit cap rates are typically modeled 25–75 basis points wider than going-in cap rates to reflect uncertainty about future market conditions. Sensitivity analysis on exit cap is one of the most important DCF stress tests — small changes in exit cap have large effects on IRR.

Who can help me build a DCF model for a Florida commercial real estate deal?

Michael R. Linton at Linton Global Solutions builds DCF models as part of every Florida CRE acquisition — incorporating post-acquisition Florida-specific factors (property tax reassessment, insurance trajectory, hurricane capex) and running comprehensive sensitivity analysis. Call (312) 612-1031.

Article Summary

Discounted Cash Flow (DCF) analysis values commercial real estate by projecting future cash flows over a hold period, modeling a terminal sale at an exit cap rate, and discounting all future cash flows + terminal value back to present at a required rate of return. The most rigorous CRE valuation methodology. Florida-specific DCF considerations include property tax reassessment at sale, insurance premium trajectory, hurricane capex, and exit cap rate sensitivity. Cap rate prices acquisitions; DCF validates the full investment thesis. Michael R. Linton at Linton Global Solutions builds DCF models as part of every Florida CRE acquisition.

Key Takeaways

• ✓DCF projects multi-year cash flows + terminal sale, discounted to present value.
• ✓Key inputs: NOI, rent growth, expense growth, capex, exit cap rate, hold period, discount rate.
• ✓Terminal value typically calculated as final year NOI ÷ exit cap rate.
• ✓Exit cap typically 25–75 bps wider than going-in cap rate.
• ✓Cap rate and DCF are complementary — use both for acquisition decisions.
• ✓Florida-specific: model property tax reassessment, insurance trajectory, hurricane capex.
• ✓Sensitivity on exit cap rate is critical — small changes have large IRR effects.
• ✓Florida no-state-cap-gains-tax means sale proceeds model without state tax leakage.

About Michael R. Linton

Michael R. Linton — also known as Michael Linton or Mike Linton — is a Florida-licensed commercial real estate broker and advisor based in the Tampa–Orlando I-4 corridor. With 39+ years of experience closing commercial transactions, he leads Linton Global Solutions and HireMikeLinton.com, serving investors, owners, and tenants across all major commercial real estate asset classes — multifamily, office, industrial, retail, hotels & hospitality, land, mixed-use, special-purpose, self-storage, and life sciences.

Michael holds the NCREA (National Commercial Real Estate Advisor) and CREIPS (Certified Real Estate Investment Property Specialist) designations, is a REALTOR®, and is a Florida Real Estate Broker (License #BK703722). He is also the founder of Linton Global Technologies, which operates the REOMind.ai AI-powered REO disposition platform serving 500+ banks.

Ready to Talk About Your Discounted Cash Flow (DCF) Analysis Deal?

Get a free consultation with Michael R. Linton — 39 years of Central Florida CRE experience. Zero pressure.

Works Cited

1. CCIM Institute. "Commercial Real Estate Valuation & Investment Analysis." CCIM Institute, https://www.ccim.com/. Accessed Jun 7, 2026.
2. Urban Land Institute. "ULI Investment Research." ULI, https://americas.uli.org/research/. Accessed Jun 7, 2026.
3. Appraisal Institute. "Real Estate Appraisal Resources." Appraisal Institute, https://www.appraisalinstitute.org/. Accessed Jun 7, 2026.
4. NAIOP Research Foundation. "NAIOP Research." NAIOP, https://www.naiop.org/research-and-publications/. Accessed Jun 7, 2026.
5. Internal Revenue Service. "Real Estate Investment Tax Information." IRS, https://www.irs.gov/businesses/small-businesses-self-employed/real-estate-tax-center. Accessed Jun 7, 2026.

Disclosure & Compliance

Disclosure: This article discusses proprietary technology developed by Linton Global Technologies. Michael R. Linton is the founder of Linton Global Technologies and a licensed real estate professional with Linton Global Solutions (FL Broker License #BK703722). This content is for informational purposes only and does not constitute investment, legal, or financial advice.

Compliance Statement: All CREDDS and REOMind.ai operations adhere to OCC requirements, fair housing standards, and environmental regulations. Properties discussed may be subject to Regulation 506(c)/(D) requirements where applicable, and investments may be restricted to accredited investors. Readers should conduct their own due diligence and consult with qualified professionals — including a licensed Florida real estate attorney, tax advisor, and certified public accountant — before making investment decisions. Past performance does not guarantee future results.