Income Approach Method Of Valuation
The income approach is an application of discounted cash flow analysis in finance.
Income approach method of valuation. The income approach is a methodology used by appraisers that estimates the market value of a property based on the income of the property. It s calculated by dividing the net operating income by the capitalization. Income approach is a valuation method used for real estate appraisals that is calculated by dividing the capitalization rate by the net operating income of the rental payments. Investors use this calculation to value properties based on their profitability.
It is particularly common in commercial real estate appraisal and in business appraisal. The income approach is one of three major groups of methodologies called valuation approaches used by appraisers. The income approach seeks to identify the future economic benefits to be generated by an entity and to compare them with a required rate of return. The fundamental math is similar to the methods used for financial valuation securities analysis or bond pricing.
The income approach is a real estate valuation method that uses the income the property generates to estimate fair value.