Income Capitalization Approach Example

By dividing the net operating income of the subject property by the capitalization rate you have chosen you arrive at an estimate of 100 000 as the value of the building.

Income capitalization approach example. Therefore it is a way of turning the property s income into value. For example when valuing a four unit apartment building. In order to estimate the subject property value using the income approach the first step is to create a proforma cash flow statement for the anticipated holding period. You can use the numbers from the previous examples to calculate the value.

Net operating income i capitalization rate r estimated value v 10 000 0 10 100 000. Rea appraisal income approach income capitalization example real estate appraisal from a to z income capitalization example. When you buy a property you buy either the amenities it offers or the income it offers. Using the following market assumptions let s estimate the cash flows to the owner over a five year holding period.

Example of the income approach. Income approach example using yield capitalization. With the income approach an investor uses market sales of comparables for choosing a capitalization rate.