[LgWoodenBadger]

Pricing something based on what you project to make over 20 years seems like an insane way to go about it. Nobody can predict that far in the future.

It's a no-lose scenario for banks though, which is why it's done that way I guess.

[crazygringo]

Everything is priced that way, basically. In the world of finance, everything is priced according to the future income it can generate -- not just real estate, but stocks, bonds, etc. There's nothing insane about it. To the contrary, it's the only rational way of doing things.

You're right that nobody can predict correctly that far in the future, but ultimately you have to choose whether you think a business decision will be profitable or not, so you have to predict anyways or else you could never do anything. People build lots of models to try to predict better. And market prices reflect a middle point between the pessimists and the optimists.

Also, it's not no-lose for banks. If the owner walks and the property is re-sold for less than it was originally bought for minus the down payment, the bank very much loses. That's a major point of the article, why the bank would prefer the space to continue vacant for a few years than take that loss.

[mcphage]

> Everything is priced that way, basically. In the world of finance, everything is priced according to the future income it can generate -- not just real estate, but stocks, bonds, etc. There's nothing insane about it. To the contrary, it's the only rational way of doing things.

The only rational way of doing things is to turn every part of our economy into a bubble? Well, that at least explains why it’s all collapsing.

[antognini]

This article probably omitted it for simplicity, but you would discount the income stream over time. Projected income at the 20 year mark is valued much less than income next year. That helps to account for the uncertainty.