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This episode is a business coaching course where the term discount rate is broken down.

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Featured Coaching Excerpt - Notes & Transcript, Part 1
  • Discount Rate: The percentage rate at which money or cash flows are discounted. This discount rate reflects both the market risk-free rate of interest and a risk premium.
  • Lesson Nugget: With a future compounded investment growth number in mind, you can use a discount rate to determine the present day value of that money.

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- All right, thrivers. Today we have the pleasure of being joined here with Michael There-is-no-real-estate-topic-too-obscure Burer on Thrive15.com, an alternative to lynda.com, to talk about a topic that you're passionate about. I'm passionate about. Something we need to know in the world of real estate. It's discount rate.

Now, Michael, I'm going to read the definition, and I'd like for you to add a little bit of clarity. An example that the thrivers can handle-- that I can handle, really-- it's just for me to handle. So we can make sure we leave here knowing what we need to know. So here we go.

"Discount rate: The percentage rate at which money or cash flows are discounted. The discount rate reflects both the market risk rate of interest and a risk premium."

So, Michael, in terms of layman's terms, I mean, you are a CFO; you deal with real estate every day. When would we even talk about discount rate, and what does it really mean?

-So when you're evaluating a future stream of cash-- a future cash flow-- and you wanted to bring it back to the present to determine what it's worth, what its value is, you'd use a discount rate to compare it to dollars today. So future dollars compared back to today.

-So if I'm thinking about buying a building, walk me through when I would use this. I just want to grasp it.

-So you would look at the projections for this building, and say, this building's going to pay me $100,000 per year for the next 10 years. So what is that building worth today? You would discount that back to get to a present value of what the building-- what that income stream is worth today.

-Now I don't know how to say this any other way, and so I wrote it down. And I crossed it out and I edited it. And I wrote it down again and I-- really, really complicated. But I wanted to share my appreciation for you in a way that I thought was-- I didn't want to discount it too much. I didn't want the discount rate to be too strong, too high, too low, too-- I just want it to be accurate. So here we go.

-All right.

-I appreciate you being here to talk about discount rates so much that it feels almost spiritual.

Boom!

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