Document Type
Marquette Only
Language
eng
Publication Date
7-1993
Publisher
Appraisal Institute
Source Publication
Appraisal Journal
Source ISSN
0003-7087
Abstract
Commercial real estate investment is motivated by a changing combination of three investment benefits: cash flow, appreciation, and tax shelter. Although the relative importance of the three benefits of real estate has shifted significantly, the direct capitalization method of real estate valuation has remained unchanged, only valuing the cash flow portion of real estate. This article reviews the financial theory and limiting assumptions of direct capitalization. Using real estate cash flow examples, the article reveals that the internal rate of return does not equal the capitalization rate plus a growth rate (Y < R + g).
Recommended Citation
Eppli, Mark, "The Theory, Assumptions, and Limitations of Direct Capitalization" (1993). Finance Faculty Research and Publications. 104.
https://epublications.marquette.edu/fin_fac/104
Comments
Published version. Appraisal Journal, Vol. 61, No. 3 (July 1993): 419-425. Publisher link. Reprinted with permission from The Appraisal Journal July 1993. © 1993 by the Appraisal Institute, Chicago, Illinois. All rights reserved.