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
The Loan-to-value ratio (LTV) is a calculation that measures how much you need to pay for a mortgage (loan) concerning how much the asset is worth. The loan-to-value ratio in real ...
A Vanilla Shell - also known as a Vanilla box, white box or whiteboxing – is something very common in commercial real estate and growingly common in residential real estate. In many ...
Each payment made by the borrower is equal each period, usually monthly. Each payment is comprised of principal and interest. Interest is based on the beginning balance. The cash paid less ...
Legal competence of parties to be held responsible for the terms of a contract or to be brought into the courts. Those who are under the legal age, are mentally incompetent, or under the ...
Possession and use of a property estate by virtue of a lease. There are four types of leasehold estates: estate for years, periodic tenancy, tenancy at will, and tenant at sufferance. ...
The right to recover property taken away by foreclosure by paying the lender the total amount owed plus foreclosure costs. The right of a debtor in bankruptcy to recover personal ...
Materials that are inherently noncombustible, are widely used in constructing exterior surfaces and include brick, aluminum siding, cement, and asbestos shingles. ...
Analysis of the risks and rewards to an individual in making a particular property investment. Investment analysis considers the cost of the original investment, the investment return over ...
Circumstance where no people or contents occupy or are kept in a building for at least 60 consecutive days. The same stipulations apply to property coverages as found in unoccupancy. ...
Have a question or comment?
We're here to help.