What is the appropriate discount rate to use to discount future taxes I must pay on a condo I might buy?

Question

There are actually two condos I might buy - one has an abatement (no taxes for first 10 years, phased in for the next 5 years, then full taxes after that). The other condo is cheaper but has no abatement. I have everything set up to do an NPV analysis, but I'm not sure what discount rate to use. I think it's the the 30-year T-bill rate, and I think that's somewhere in the mid 4s right now. Is that correct?

Answer 1

How long is your mortgage? If your mortgage is 30 years, then use the 30-year T-bill, if it's less, use a smaller T-bill.

If it were me, I'd use the 30-year T bill but throw in a couple of extra percentage points to adjust for volatility (you never know when market prices decide to rise really quickly...then crash).

I'm assuming that these 2 condos are exactly the same (but doubtful, as the first one is probably much nicer or at least in a better location). So to do a proper comparison, you'd need to not only look at financial, but compare how much an extra bedroom, square footage, or bathroom, or location would matter to you as a buyer. Would you pay 20k more for another bedroom? If so, tack on that 20k pricetag to the 2nd condo to make both properties 'comparable', and then do your NPV. It's not all about money in real estate....