Income Approach to Valuation

The Income Approach to valuation estimates a property's worth based on the income it can generate. It considers the net income (rents minus expenses) the property produces and applies a capitalization rate, which reflects the return expected by investors in similar properties. Essentially, the value is calculated by dividing the net income by the rate, providing an indication of what the property is worth based on its income-producing potential. This approach is commonly used for commercial real estate and rental properties to determine their fair market value.