Income Approach
Definition of "Income approach"
When doing an Appraisal, the Appraiser has several methods to get to his/her Market Value evaluation and obtain a number regarding that property’s market value. The Income Approach is one of them.
The income approach is regularly used in the Commercial Real Estate Market. Here’s why:
Let’s say an appraiser was hired to evaluate a retail facility. If the appraisal only evaluates the building itself and similar properties in the region… it might not be sufficient. What if it’s the only retail store in that area? To get to a more effective appraisal, the appraiser has to also use the income approach and take into consideration the income that facility produces – and can still produce in the future - to its owner.
Some people also call it “capitalization approach” and one of the ways to assert it would be something like:
Market value = Expected annual income / Capitalization rate
For example: a rental property is anticipated to generate future annual income of $50,000 and the capitalization rate is 8%. Then, market value = $50,000/.08 = $625,000.
Real estate secrets:
Approach our real estate Glossary Terms to learn other types of Appraisals!
Or search The OFFICIAL Real Estate Agent Directory® and find a real estate agent for you!
Popular Real Estate Terms
Approach to appraise rental property based on anticipated future earnings to be derived from it plus the estimated selling price at the end of he period held. ...
Street terminating at one end with only one outlet. A dead end street is not a through street. See also cul de sac. ...
The definition of a master planned community in real estate is a community planned from the ground up with the purpose of being as convenient, aesthetically appealing and luxurious as ...
Assures that the title is free of any legal claims including encumbrances. It includes covenants of seizin, freedom from encumbrance, express warranties of title, right to quiet enjoyment, ...
Structure have two dwelling units under the same roof. Two-story apartment unit. ...
A simple box-shaped house with clapboard siding and a gable roof. ...
Giving additional time to conduct some act. An example is a landlord granting a tenant an additional week to make the rental payment. ...
Some states make the legal assumption, based on title theory, that the mortgagee is a partial owner of the real estate securing the mortgage and remains as is until the debt is fully paid. ...
Section of the Internal Revenue Code applies to assets used in a trade or business,. In general, gains on section 1231 assets are taxed at capital gains rates, and losses are considered ...
Have a question or comment?
We're here to help.