Legal Definitions - capitalized value

Capitalized value is the current worth of an asset, such as real estate, based on the expected income it will generate over its lifetime. This calculation helps investors decide if an asset is a good investment.

To calculate capitalized value, you divide the expected yearly income by the capitalization rate and then reduce the sum by a discount rate to reflect the present value. The discount rate takes into account the time value of money, which means that future money is worth less than current money due to inflation and missed interest opportunities.

For example, let's say a real estate company wants to invest in a townhouse that generates $20,000 a year with a capitalization rate of 8% and a discount rate of 10%. The capitalized value would be $225,000 ($20,000 ÷ 8% = $250,000*90% = $225,000).

Overall, capitalized value is a useful tool for investors to determine the current worth of an asset based on its expected income over time.