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What is a “cap rate”? for the income approach method, what is the difference between the...

What is a “cap rate”? for the income approach method, what is the difference between the direct capitalization method and the discounted cash flow method?

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Answer #1

capitalization rate = net operating income of property / curreny market value

it is rate of a potential return on a real estate investment and it is wedely used and compared with other real estate valuation rates

capitalization method is the method used to value the firm using the net present value of future cash flows. and discounted cash flow is a valuation using the future cash flows, the main difference is that capitalization method can be used for asset having stable NOI or net operating income and discounted cash flow methos is used for the valuation having flatuating net operating income.

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