What is the first step in the Direct Capitalization technique?

The first step in the Direct Capitalization technique is to forecast the Potential Gross Income (PGI). This step involves estimating the total income that a property could generate if it were fully leased at market rates, without accounting for vacancies or operating expenses. Accurately forecasting PGI is crucial, as it serves as the foundation for further calculations related to the property's income and value.

Once the PGI is established, it allows for the subsequent assessment of operating expenses, calculation of Net Operating Income (NOI), and ultimately the estimation of the property’s value. These subsequent steps rely entirely on a well-founded PGI, reinforcing why it is essential to address first in the Direct Capitalization methodology.