General equivalency between the discount rate and the going-in & going-out capitalization rates

Gaetano Lisi


Basically, this note extends the very useful works by Etter (1994) and Sevelka (2004) about the equivalence between discount rate and capitalization rate. The extension concerns two main points. First, it frames this relation within a clear and simple theoretical framework, that starts from the net present value and goes on to the direct capitalization, passing through the yield capitalization. Second, it also provides an equivalence relation between discount rate and going-in & going-out capitalization rates.

Full Text:



Clayton, J., and L. D. Glass (2009). Cap Rates and Real Estate Value Cycles: A Historical Perspective with a Look to the Future, Babson Capital Research Note, June, 1-17.

Corgel, J. B. (2003), Real Estate Capitalization Rate Interpretations through the Cycle, Cornell Real Estate Journal, June, 11-18.

Etter, W. E. (1994). Direct Capitalization Versus Discounted Cash Flow Analysis, Tierra Grande, the Real Estate Center Journal, Publication 1051, Fall.

Hamilton B. W. and Schwab, R. (1985). Expected Appreciation in Urban Housing Markets, Journal of Urban Economics, 18, 1, 103-118.

International Association of Assessing Officers (IAAO, 2013). Standard on Ratio Studies.

Phillips, R. S. (1988). Residential Capitalization Rates: Explaining Intermetropolitan Variation, 1974-1979, Journal of Urban Economics, 23, 3, 278-290.

Sevelka, 2004 Sevelka T. (2004). Where the Overall Cap Rate Meets the Discount Rate, The Appraisal Journal, Spring, 135-146.

Wang, K., T. V. Grissom, and S. H. Chan (1990). The Functional Relationships and Use of Going-In and Going-Out Capitalization Rates, Journal of Real Estate Research, 5, 2, 231-246.



  • There are currently no refbacks.

ISSN: 2254-4380