For net worth calculation purposes I'd like to be able to impute a value to a lease-option in a substantial waterfront recreational property with the following somewhat unusual terms:
1. Exclusive use of the property for next 20 years, rent free other than paying property taxes and maintaining a liability insurance policy.
2. Option to purchase the property after 20 years for 50% of its value, based on an independent appraisal procedure to be conducted at that time.
Intuitively I would think the NPV of this bundle of rights could be obtained by summing:
a. 50% of the current market value of the property, as a proxy for the NPV of the 50% discount on the future value;
and
b. NPV of market rents for the next 20 years less estimated tax and insurance payments.
But I have no idea if this is in fact a reasonable valuation methodology. Any thoughts welcomed. Thanks!
1. Exclusive use of the property for next 20 years, rent free other than paying property taxes and maintaining a liability insurance policy.
2. Option to purchase the property after 20 years for 50% of its value, based on an independent appraisal procedure to be conducted at that time.
Intuitively I would think the NPV of this bundle of rights could be obtained by summing:
a. 50% of the current market value of the property, as a proxy for the NPV of the 50% discount on the future value;
and
b. NPV of market rents for the next 20 years less estimated tax and insurance payments.
But I have no idea if this is in fact a reasonable valuation methodology. Any thoughts welcomed. Thanks!