Direct Capitalization Guide

Direct Capitalization Guide

Capitalization describes the process of using income to calculate value.

Direct capitalization is used when the property has a stable income stream and a predictable growth rate.

IRV formula = Income ÷ Rate = Value

Direct Capitalization Steps Step 1: Gather Financial Data Annual rental income from all units Operating expenses Net Operating Income (NOI) Step 2: Determine the cap rate NOI ÷ current market value = capitalization rate OR Use the cap rate of a similar property in the area Step 3: Calculate the property value Property value = NOI ÷ capitalization rate Step 4: Evaluate the investment Compare the estimated value to the listing price

Quiz 1/10

Quiz 2/10

Quiz 3/10

Quiz 4/10

Quiz 5/10

Quiz 6/10

Quiz 7/10

Quiz 8/10

Quiz 9/10

Quiz 10/10

Congratulations!

finalized