How it works
The cash flow is the list of money in and out by year. Write that list first.
- Put free-rent months in the year you do not pay.
- Put TI money in the year the cash actually moves.
- Do not smear a year-one check across ten years unless you say you are averaging.
- Keep the later rent path. The credit does not erase it.
Formula in words. Year cash = rent + extras − free-rent relief − TI cash in that year. Then discount.
| Input | Meaning |
|---|---|
| Free-rent months | When rent is reduced |
| TI amount | Build-out money |
| TI timing | The year the money moves |
| Later rent | The path after the gift |
Worked example
Here is a teaching sample. It is not customer data and not a result from a live client.
Lease A start rent$43,000
Lease B start rent$39,990
Discount rate8%
Sample NPV A$373,716
| Metric | Lease A | Lease B |
|---|---|---|
| Start rent | $43,000 | $39,990 |
| Year-1 extras | $8,000 | $8,560 |
| Year-1 credit | $22,000 | $12,100 |
| Sample NPV | $373,716 | $363,753 |
| Year | Rent | Extras | Credit | Cash out | Value today |
|---|---|---|---|---|---|
| Year 1 | $43,000 | $8,000 | $22,000 | $29,000 | $26,852 |
| Year 2 | $44,720 | $8,240 | $0 | $52,960 | $45,405 |
| Year 3 | $46,509 | $8,487 | $0 | $54,996 | $43,658 |
| Year 4 | $48,369 | $8,742 | $0 | $57,111 | $41,978 |
| Year 5 | $50,304 | $9,004 | $0 | $59,308 | $40,364 |
| Year 6 | $51,813 | $9,274 | $0 | $61,087 | $38,495 |
| Year 7 | $53,367 | $9,552 | $0 | $62,919 | $36,713 |
| Year 8 | $54,968 | $9,839 | $0 | $64,807 | $35,013 |
| Year 9 | $56,617 | $10,134 | $0 | $66,751 | $33,392 |
| Year 10 | $58,316 | $10,438 | $0 | $68,754 | $31,846 |
| Sample NPV | — | — | — | — | $373,716 |
How to read the sample
Sample NPV for the incentive lease is about $373,716. A second path lands near $363,753. That gap is a talking point, not a promise.
The TI check and free rent both sit here. If one path wins only because a credit sat in the wrong year, start over.
Year notes for the incentive lease
- Year 1 of the incentive lease has rent of $43,000.
- Shared building cost is $8,000.
- A credit of $22,000 lowers the cash you pay that year.
- Cash out this year is about $29,000. The TI check and free rent both sit here.
- Later cash gets a shrink for time. At 8 percent, year 1 is worth about $26,852 today.
- Next, year 2 rent is $44,720.
- CAM, which is a shared building cost, is $8,240.
- There is no credit in this year.
- You pay about $52,960 this year after extras and credits. The gift is gone. The step starts.
- Time shrinks later cash. At 8 percent, year 2 is worth about $45,405 today.
- Then year 3 rent is $46,509.
- Extras for the building come to $8,487.
- Credits skip this year.
- The net cash this year is about $54,996. This is the year a cheap first look fades.
- Waiting has a price. At 8 percent, year 3 is worth about $43,658 today.
- After that, year 4 rent is $48,369.
- The shared building cost this time is $8,742.
- No extra credit shows up this year.
- Cash out this year is about $57,111. Later rent now carries the deal.
- Later cash gets a shrink for time. At 8 percent, year 4 is worth about $41,978 today.
- In year 5 of the incentive lease, rent is $50,304.
- Shared building cost is $9,004.
- There is no credit in this year.
- You pay about $59,308 this year after extras and credits. NPV still counts this year.
- Time shrinks later cash. At 8 percent, year 5 is worth about $40,364 today.
- Year 6 of the incentive lease has rent of $51,813.
- CAM, which is a shared building cost, is $9,274.
- Credits skip this year.
- The net cash this year is about $61,087. Keep this later year in the sum for the sample.
- Waiting has a price. At 8 percent, year 6 is worth about $38,495 today.
- Next, year 7 rent is $53,367.
- Extras for the building come to $9,552.
- No extra credit shows up this year.
- Cash out this year is about $62,919. The row still belongs in the sum for the long path.
- Later cash gets a shrink for time. At 8 percent, year 7 is worth about $36,713 today.
- Then year 8 rent is $54,968.
- The shared building cost this time is $9,839.
- There is no credit in this year.
- You pay about $64,807 this year after extras and credits. Keep this later year in the sum for the long path.
- Time shrinks later cash. At 8 percent, year 8 is worth about $35,013 today.
- After that, year 9 rent is $56,617.
- Shared building cost is $10,134.
- Credits skip this year.
- The net cash this year is about $66,751. The row still belongs in the sum for the long path.
- Waiting has a price. At 8 percent, year 9 is worth about $33,392 today.
- In year 10 of the incentive lease, rent is $58,316.
- CAM, which is a shared building cost, is $10,438.
- No extra credit shows up this year.
- Cash out this year is about $68,754. Keep this later year in the sum for the long path.
- Later cash gets a shrink for time. At 8 percent, year 10 is worth about $31,846 today.
Add those year values. The sample NPV for the incentive lease is about $373,716. This is a teaching sample, not a client result.
Trusted sources
These are public references. They are not endorsements and not client results.