What does the term "yield capitalization" refer to?

Yield capitalization refers to a financial appraisal method used to evaluate the present value of a property based on its anticipated future income. It involves estimating the future net benefits—typically rental income or revenue generated by the property—and discounting that income back to its present value using an appropriate capitalization rate. This method is crucial for assessing investments, especially in real estate, where investors want to understand how much future earnings are worth in today's dollars.

The process relies on the assumption that the value of a property can be derived from the income it generates, making it especially useful for income-producing properties. Yield capitalization effectively captures the relationship between the expected income stream and the current value of the asset, which is essential for making informed investment decisions or for tax assessment purposes.