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# Define Discounting in Real Estate

## Discounting:

"Discounting" is a way to find out how much money that you expect to get in the future is worth in today's dollars. Since money today is worth more than the same amount of money in the future, we "discount" the future money to find its value today.

## Example:

For example, let's say you expect to receive \$1,000 in one year. To find out how much that money is worth today using discounting, you would take into account an interest rate, like 5%. In this case, \$1,000 in one year is worth about \$952.38 today.

Another example, A dollar spent in 5 years is worth less than a dollar spent today because today's dollar could be invested in a savings account or another investment and be worth more than a dollar in 5 years.

\$1 payable in 1 year is worth about 94 cents today at a discount rate of 6%. \$1 payable in 5 years is worth about 75 cents today at a discount rate of 6%. \$1 payable in 10 years is worth about 56 cents today at a discount rate of 6%.

"Wit & Whimsy with the Dumb Ox: Unlocking Knowledge with Rhyme:"

In the land of money present, and money yet to be,
"Discounting" takes the future sums, and brings them here, you see.
We know that cash today is worth, more than in the days ahead,
So, "discounting" finds the value now, of future sums instead.

Imagine now, a future gift, one thousand bucks, how grand!
But how much is it worth today? We want to understand.
With interest rates, we calculate, the present value here,
Nine hundred fifty-two dollars and change, the worth of future cheer.

"Discounting" helps us see the worth, of money yet to come,
By finding present value, where calculations sum.
In the land of money present, and money yet to be,
"Discounting" is our guiding star, for value we can see.