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Article: Direct capitalization or discounted cash flow analysis?
- Article from:
- Appraisal Journal
- Article date:
- July 1, 1993
- Author:
CopyrightCOPYRIGHT 1993 The Appraisal Institute. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)
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One issue that seems to attract increasing attention is whether the direct capitalization method (direct method) is too simplistic and subjective for valuing income properties in current markets. Many critics of the direct method advocate more use of discounted cash flow (DCF) analysis, claiming that DCF analysis is more sophisticated than the direct method and is gaining wider use among investors.
This article examines three major criticisms of the direct method compared with the performance of DCF analysis.
DIRECT METHOD CRITICISMS
The following three major criticisms of the direct method are examined here:
* Real estate investors are using ...