Which capitalization method is used to convert future net benefits into present value with a discount rate?

Yield capitalization is the method used to convert future net benefits into present value by applying a discount rate. This approach takes into account the expected income generated by a property over a specific period and applies a capitalization rate to determine the property's current worth based on its future earning potential.

Yield capitalization recognizes that money today is worth more than the same amount in the future due to potential earning capacity, so it effectively discounts future income streams back to their present value. This method is particularly useful in assessing investment properties where future cash flows can be estimated, making it a powerful tool in the field of real estate appraisal and assessment.

In contrast, direct capitalization typically utilizes a single year of net operating income and divides it by a capitalization rate, while the cost approach focuses on the cost to replace or reproduce a property. The income approach is a broader term that encompasses yield capitalization but doesn't specifically address the discounting process. Understanding yield capitalization is essential for accurate valuation in the context of real property assessments based on future income potential.