What is the primary purpose of yield capitalization in real estate?

Yield capitalization is primarily focused on estimating the present value of future income streams generated by a property. This method involves taking into account the anticipated cash flows that a property will produce over time, including rental income and potential appreciation in value. By discounting these future cash flows back to their present value, investors can determine what they should be willing to pay for the property today based on its income-generating potential.

This approach is critical for investors, as it allows them to make informed decisions about the profitability and viability of real estate investments. Unlike other methods that may emphasize a property's historical performance or general market trends, yield capitalization directly connects future income expectations with an investment's current valuation, making it a foundational tool in real estate investment analysis.