What is the expected holding period for projecting net cash flows in the DCF approach?

In the Discounted Cash Flow (DCF) approach, the expected holding period often averages around 10 years for projecting net cash flows. This timeframe is commonly used in real estate analysis because it strikes a balance between providing enough time for significant market fluctuations and property appreciation while remaining manageable for forecasting purposes.

A 10-year holding period allows for consideration of cyclical trends in the real estate market, including economic growth, interest rate changes, and demographic shifts, which can impact property performance. This period is also long enough to capture the trends associated with income generation from rental properties and the potential for future sales, making it a widely accepted standard in the industry.

Using a shorter or longer period would either risk missing critical long-term trends or be less representative of typical investment horizons for real estate assets. Therefore, the choice of 10 years for projecting net cash flows aligns well with industry practices and investor expectations, validating its appropriateness in the DCF method.