DCF approach for valuation when making offer?

[George C.]

do people use discounted cashflow approach to get present value for subject property or just use recent comps? wondering which method will be more useful?

[John M Chludzinski]

For any real estate investment, I take the simple approach - is the property going to give me the cash flow pattern I need? Using MY costs, not rules of thumb or present value rates, or any such nonsense. I take the expected income, subtract my expected costs (taxes, my insurance rate, what I expect the maintenance costs and any utilities to be) and compare to my cash outlay for purchase (including any costs of immediate repairs needed right after closing) and see if it meets my desired threshold.  I can do that in 4 minutes with a pen on paper and a mortgage calculator to get my monthly P&I financing number. No fancy spreadsheets, discounting, extrapolating, estimating needed.  You cannot get hurt in long term real estate investing (10 year time horizon) if there is positive cash flow from day one.  Anything over that, like valuation gains, mortgage refinancing, principal repayments, etc. are the icing on the cake.