In yield capitalization, what does converting future benefits to value involve?

In yield capitalization, converting future benefits to value primarily involves discounting future cash flows. This method is central to understanding the value of an investment based on the income it is expected to generate over time. The underlying principle is that future cash flows are worth less than their nominal value today due to time value of money. By discounting these expected income streams back to present value using an appropriate discount rate, appraisers can derive a current value that reflects the anticipated future earnings from the investment.

While estimating tax liabilities and assessing market comparisons can be important considerations in the broader context of property valuation, they are not the primary focus in yield capitalization. The method specifically aims to evaluate the expected returns an investment will yield over its life and convert those expected future benefits into a single present value figure, which is why discounting future cash flows is the most critical component in this context.