Income Capitalization Approach

The Income Capitalization Approach is a method used to estimate the value of a property based on its ability to generate income. It involves calculating the property's potential or actual annual income (such as rent) and then applying a capitalization rate (a percentage that reflects risks and return expectations). By dividing the income by this rate, you determine the property's current value. This approach is commonly used for income-producing properties like apartments or commercial buildings, providing an estimate of worth based on how much income the property can produce.