Income Approach To Value Real Estate

The income approach says the value of a real estate property is determined by taking what is called the net operating income noi of the property and dividing it by the cap rate.

Income approach to value real estate. Also known as commercial investment valuation this method is commonly applied to commercial properties like offices but it may also be used for income producing residential properties such as rentals or blocks of apartments. There are three approaches to value real estate. Compared to the other two techniques the sales comparison approach and the cost approach the income approach is more complicated and therefore it is often confusing for many commercial real estate professionals. The income approach sometimes referred to as the income capitalization approach is a type of real estate appraisal method that allows investors to estimate the value of a property based on the.

A comparable sales approach a relative valuation method b income approach a time value of money based method which includes the i direct capitalization method and ii discounted cash flow method and c cost approach which values real estate at its replacement cost. Real estate professionals prefer the income approach for rental income properties like apartment buildings office buildings or shopping malls because the true value of such properties is in the. The income approach or investment value approach to valuation assesses the value of a property as an investment. Income approach is a real estate valuation method used by investors to appraisal a piece of real estate based on its earnings profitability and risk.

The biggest problem in using the sales comparison approach to value commercial real estate is the issue of sample size. We will discuss the three major formulas that comprise the approach. The income approach to property valuation is a useful tool for investors to evaluate income producing real estate. The net income generated by the property is measured in conjunction with certain other factors to calculate its value on the current market if it were to be sold.

The income approach is one of three techniques commercial real estate appraisers use to value real estate.