Income Approach Valuation Method
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.
Income approach valuation method. What is the income approach to valuation. The income approach is a real estate valuation method that uses the income the property generates to estimate fair value. 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. The income approach is an application of discounted cash flow analysis in finance.
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. When a property s intended use is to generate income from rents or leases the income method of appraisal or valuation is most commonly used. With the income approach a property s value today is the present value of the future cash flows the owner can expect to receive. Investors use this calculation to value properties based on their profitability.