Yield Capitalization

 Used to convert future benefits, typically a periodic income stream and reversion,
into present value by discounting each future benefit at an appropriate yield rate
or by applying an overall rate (extracted using one of the yield methods) that
explicitly reflects the investment’s income pattern, change in value, and yield
rate.
 To perform yield capitalization, an appraiser”
o Selects an appropriate study period
o Forecasts all future cashflows
o Chooses an appropriate yield rate
o Converts future benefits into present value by discounting each annual
future benefit
 Yield Rate –
Discounting
 A general term used to describe the process of converting future cash flow s into
a present value.
 Discount rate – interest rate used for the discounting process and may be the
discount rate, property yield rate, equity yield rate, or some other defined rate. In
real estate appraisal practice, the most commonly used is the property yield rate
(Yo).
 Based on the concept that benefits received in the future are worth less than the
same benefits received today.