Abstract
One of the 2 types of models used to value property based on expected income is the discounted cash flow (DCF) model. This model requires explicit forecasts of expectations beyond year one. Investments with holding periods assumed to be finite are valued using one-period DCF models. These models require an estimate of reversion proceeds at the end of the period in addition to income forecasts. The use of the one-period model makes estimating reversion difficult, particularly when the rate of income growth is expected to change during or after the holding period. A 2-period DCF model is presented that treats future income flows explicitly, rather than truncating them after an arbitrarily selected holding period. This model facilitates the valuation of an income stream expected to be above or below normal for a certain period, then to return to normal long-run growth rates. The expected reversion at any time can be estimated using variations of the 2-period DCF model.