Direct Capitalization
Converting a single year's stabilized net operating income into value by dividing by a market-derived capitalization rate. The workhorse income technique when income is stable: value = NOI ÷ cap rate.
Related Terms
Capitalization Rate (Cap Rate)
Cap RateThe ratio of a property's net operating income to its market value or sale price, expressed as a percentage.
Net Operating Income (NOI)
NOIThe annual income remaining after deducting all operating expenses from effective gross income, but before deducting debt service (mortgage payments) and income taxes.
Discounted Cash Flow Analysis (DCF)
DCFA yield capitalization technique that estimates property value by projecting future cash flows (income minus expenses) over a holding period and discounting them to present value using a market-derived discount rate..
Income Approach
A valuation method that estimates a property's value based on the income it generates or is expected to generate.
More in Income Approach
View allGross Rent Multiplier (GRM)
GRMThe ratio of a property's sale price to its gross monthly (or annual) rental income.
Effective Gross Income (EGI)
EGIPotential gross income minus vacancy and collection losses, plus other income (laundry, parking, late fees).
Vacancy Rate
The percentage of available rental units or space that is unoccupied at a given time.
Market Rent
The rental income a property would most likely command on the open market, based on analysis of comparable rental properties in the area.