Net Future Value (NFV) or Capital Accumulation
article
Net Future Value (NFV) is most helpful in non-real estate investments where cash flows are reinvested in the investment. However, there are real estates situations where cash flows can be reinvested when portfolios and other structures are in place, and the Net Future Value Reinvestment Rate can be more reflective of the overall performance of the combined properties.
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Video Title: Learn about the
Net Future Value (NFV) or Capital Accumulation
Video Publication_Date: Tuesday, May 21, 2024
Video Duration: 0:00
Video Description:
The topic for this commercial real estate investment analysis video is
Net Future Value (NFV) or Capital Accumulation
. Throughout the video planEASe Software is used to illustrate
Net Future Value (NFV) or Capital Accumulation
. The video does not use the current Proforma Example, but all the factors that the
Net Future Value (NFV) or Capital Accumulation
are sensitive to are covered.
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How the Net Future Value (NFV) is calculated?Definition
The value at the end of the Holding Period of all positive cash flows reinvested at the Reinvestment Rate from an investment, regardless of the invested amount, less the Present Value, discounted at the Safe Rate, of all negative cash flows. The Net Future Value, then, measures the additional amount of money that the investor would have at the end of the Holding Period as a result of making the investment.
Example
This example is designed to make sure the effect of the Reinvestment Rate of the future value process is very clear and not just shown as a mathematical formula. The actual investment was not very good (in fact there is $0 profit), but because of the reinvestment opportunity, which could be some outside investment or the same investment, the Future Value shows a gain of $22,116.60.
Date
|
Actual
Cash Flow
|
Modified
Cash Flow
|
Future Value Reinvested
at 10.0000%
|
| 1 Jan 2010 | ($100,000.00) | Not Modified | |
| 1 Jan 2011 | 20,000.00 | Compounded forward 4 years by 10% | 29,289.65 |
| 1 Jan 2012 | 20,000.00 | Compounded forward 3 years by 10% | 26,626.95 |
| 1 Jan 2013 | 20,000.00 | Compounded forward 2 years by 10% | 24,200.00 |
| 1 Jan 2014 | 20,000.00 | Compounded forward 1 years by 10% | 22,000.00 |
| 1 Jan 2015 | 20,000.00 | Not modified, received at end of investment | 20,000.00 |
| TOTALS | $0.00 | The actual investment only returned the same amount invested over five years. The Future Value is the total of all the positive cash flows reinvested at the Reinvestment Rate. | $122,116.60 |
Net Future Value (NFV) Considers: - All assumptions entered, Reinvestment Rate, Safe Rate
Net Future Value (NFV) Ignores:- Only things that were not entered
Why is Net Future Value (NFV) useful?
Net Future Value is most helpful in non-real estate investments where cash flows are reinvested in the investment. However, there are real estates situations where cash flows can be reinvested when portfolios and other structures are in place, and the Net Future Value Reinvestment Rate can be more reflective of the overall performance of the combined properties.
The Net Future Value can be shown in these planEASe reports:
Written by
Michael Feakins, CCIM
of planEASe Software