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Define Direct Capitalization in Real Estate

Direct Capitalization: 

"Direct capitalization" is a method used to figure out how much a property, like an apartment building or office space, is worth based on the money it can make for the owner. It's a way to determine the value of an investment property by taking the income it generates and dividing it by a number called the "capitalization rate."

Example: 

For example, let's say there's an apartment building that makes $100,000 a year in rent, and the capitalization rate is 5%. To find the value of the building using direct capitalization, you would divide the $100,000 by 5%, which would give you a value of $2,000,000.

"Wit & Whimsy with the Dumb Ox: Unlocking Knowledge with Rhyme:"

In the land of buildings tall, where people come to stay,
"Direct capitalization" helps, to find a value we can weigh.
It takes the income that's produced, and the cap rate in hand,
Divide them up, and there you have it, the property's worth so grand.

Imagine now, an apartment tower, with tenants near and far,
It brings in cash, a hundred grand, like a bright and shining star.
The cap rate's five, so we divide, and what do we then find?
A value grand, two million bucks, the worth of this great find.

"Direct capitalization" is a tool, in real estate's grand game,
To find the worth of property, where income stakes its claim.
In the land of buildings tall, where value must be known,
"Direct capitalization" helps, a property's worth be shown.