Does Location Affect NPV?

NPV, or net present value, is a finance concept that provides one way to measure the potential profit from a real estate investment.  NPV is the present value of the property in question, less any estimated future costs and expenses.  If the future expenses are greater than the present value of the property, then the property is typically not a good financial investment.  However, if the present value of the property still is greater than any anticipated future expenses, then the property is much more likely to be a good financial investment choice.   

Factors that Affect NPV

There are a number of factors that directly affect NPV, including the state of the economy, property tax laws and rates, insurance costs, the physical condition of the property, and any other costs associated with the property.  As these costs increase, the NPV of the property decreases, making it a less attractive investment.

How Location Affects NPV

In turn, the physical location of the property can directly affect these important factors.  For instance:

• Property tax rates may vary based on location within a certain neighborhood, town, city, county, state, and/or area of the country.
• Insurance costs may differ due to location; if a house is located in an area prone to flooding or other severe weather damage, insurance costs are obviously higher.

• In a certain area of the country that is experiencing high unemployment rates, the real estate market is likely to be weak, thus affecting the present and future value of the property.

Consult an Attorney for Assistance

If you need more information about how location affects NPV, and how your property’s location helps determine its NPV, you may wish to consult an attorney for advice.  An experienced real estate attorney can assist you in determine your property’s NPV, and can refer to any other resources that you might need with respect to the NPV of your property.