Income Approach Direct Capitalization

For income producing real estate the noi is the net income of the real estate but not the business interest plus any interest expense and non cash items e g.

Income approach direct capitalization. Direct capitalization this is simply the quotient of dividing the annual net operating income noi by the appropriate capitalization rate cap rate. Valuation income approach direct capitalization is a real estate appraisal method that values a property by taking net operating income and dividing it by a predetermined capitalization rate. The direct capitalization method is achieved by dividing the income generated by the property by its cap rate. Direct capitalization requires that there is good recent sales data from comparable properties.

The direct capitalization method the direct capitalization method estimates property value using a single year s income forecast. Depreciation minus a reserve for replacement.