What does the term 'capitalize' mean in relation to real estate?

In the context of real estate, the term 'capitalize' refers to the process of converting future income into a present value. This concept is fundamental in real estate valuation and investment analysis, where future cash flows generated by a property—such as rental income—are assessed and discounted to determine their present worth. The capitalization process often employs methods like the income approach or discounted cash flow (DCF) analysis.

By capitalizing future income, investors can make informed decisions about property investments, comparing potential returns and assessing whether a property is priced appropriately. This focus on future income and its value today is essential for effective real estate analysis and decision-making. It highlights the importance of understanding how income generation influences property value over time.