What distinguishes the direct capitalization method from the yield capitalization method?

The direct capitalization method and the yield capitalization method differ primarily in their application of timeframes for the financial performance of properties. Direct capitalization is typically used for valuing income-producing properties based on a single year's income, providing a snapshot or short-term assessment of property value. This method capitalizes the net operating income (NOI) at a specified capitalization rate to determine the property's value.

On the other hand, yield capitalization is focused on valuing properties based on the present value of expected future cash flows over an extended period, which means it is particularly suited for long-term evaluations. This method involves forecasting income and expenses for several years and discounting them back to their present value using an appropriate discount rate.

Understanding these distinctions is crucial for appraisers as it influences the approach they choose based on the investment horizon and income characteristics of the property in question.