What type of income does direct capitalization generally consider?

Direct capitalization primarily focuses on net operating income (NOI) because it represents the income generated from the property operations before accounting for financing costs, taxes, and any other non-operating expenses. NOI is calculated by taking the gross rental income and subtracting operating expenses, allowing appraisers to assess the property's performance and income-generating potential succinctly. This measure is critical for investors and appraisers, as it provides a clearer picture of the cash flow that a property can generate from its operations.

In the context of valuing real estate, using NOI allows for a standardized approach, as it helps to isolate the property’s income from other financial influences and focuses solely on the property’s earning capability. This makes it easier for comparisons across similar properties and assists in determining a more accurate capitalization rate for an investment analysis.

Other options, such as gross income, cash flow before tax, and property appreciation, do not capture the essence of direct capitalization, which centers on operational performance and sustainability rather than excess funding or speculative growth potential.