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direct capitalization

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direct capitalization

Dividing the net operating income of a property by a selected capitalization rate to arrive at a value. Contrast with yield capitalization.



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04% (to generate market value from direct capitalization equal to $10,000,000) Discount Cap Rate Rate Difference Theoretical rates 10.
Ideally, the Overall Capitalization Rate (Ro) utilized in Direct Capitalization is typically derived from comparable sales.
Under this approach, there are two different techniques for converting net operating income into a value indication: 1) direct capitalization, which employs an overall capitalization rate on the net operating income from a stabilized 12-month period and 2) yield capitalization, which employs an internal rate of return on a stream of annual cash flows and a residual capitalization rate on the reversionary property value at the end of the projected investor holding period.
 
 
 
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