What does the terminal value represent in real estate?

The terminal value is an essential concept in real estate finance that represents the estimated property value at the end of a specified holding period, typically when an investor plans to exit or sell the property. It provides a forecast of what the property is expected to fetch in the market at that future point in time, considering factors like market conditions, property appreciation, and potential income generation until the sale.

In the context of investing, the terminal value is often derived using various methods, such as the sales comparison approach, capitalization of the income stream, or discounting future cash flows back to their present value. Understanding the terminal value is crucial for investors as it significantly influences the overall valuation of the investment and the projected returns upon sale.

The other options, while related to real estate finance, do not accurately define the terminal value. The annual income reflects the ongoing cash flow generated by the property during ownership, acquisition cost focuses on the initial purchase price, and future income potential refers to expected cash flows rather than the ultimate value at the time of sale.