Reversion Factor

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The Reversion Factor is a compound interest factor used to discount a single future payment to its present value, given the appropriate discount rate and discount period.

 

In income property appraising, the reversion is the value of the land and building at the end of a holding period.

 

Example:  An investor purchases a duplex for $100,000 and expects to sell it in 5 years for $120,000.  The reversion is $120,000.  If an appropriate discount rate is 12%, then the reversion factor is 0.567427 and the present value of the reversion is:

 

Value = Reversion x reversion factor

Value = 0.567427 x $120,000

Value = $68,091

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