Investment
Analyst
uses the
capitalization process
to estimate the value of income
producing property.
One of two
methods used to analyze the present
value of a future income stream for
purposes of real estate investment
valuation and comparison.
Yield capitalization should be
clearly distinguished from
direct capitalization. Direct
capitalization involves a single
year's projected income and expenses
to arrive at value. Yield
capitalization relies on projected
income and expenses over a specified
holding period including operations
and sale proceeds cash flows), and
an appropriate
discount rate to arrive at
present value based on projected
cash flows.
Both yield
and direct capitalization methods
fall under the income approach to
value. Yield capitalization is
associated with value estimates and
can be used for estimating either
market value or investment value
depending on what is required by the
investor.
Yield
capitalization can be applied to
either before or after tax
cash flows.
Appraisal by Capitalization
The processing of an indication of
market value through the discounting
of anticipated future net income.The validity of the value
indication so produced depends upon
the amount and probable duration of
the anticipated net income, and the
market support for the rate at which
it is discounted.
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