Which valuation method can be used as an alternative to capitalization rates?

The choice of EBITDA multiples as an alternative to capitalization rates stems from the nature of both valuation methods, which focus on income-generating properties. EBITDA, or Earnings Before Interest, Taxes, Depreciation, and Amortization, provides a clear metric of a property's operational profitability. By applying EBITDA multiples, investors can assess the value of a property based on its earnings potential relative to similar investment opportunities.

This approach is particularly valuable for investors focusing on properties that yield stable and predictable income streams, as it incorporates operational efficiencies and growth potential beyond simple rental income. Investors can compare EBITDA multiples across similar properties to determine relative value, adjust for different risk profiles, and gauge potential returns.

Other methods listed may also be useful in evaluating properties but do not serve as direct alternatives to capitalization rates in the same way. For instance, net present value focuses on the difference between cash inflows and outflows over time, while debt yield is primarily concerned with the return on investment related to debt financing. Cash on cash return, while a useful measurement of cash flow returns on initial equity investment, is more oriented toward liquidity and immediate cash flows rather than overall property valuation based on income. Thus, EBITDA multiples provide a robust method for valuing properties by emphasizing their earnings potential,