Income Approach1

Definition of "Income approach"

Chuck Lapham
  Keller Williams Realty

Also called capitalization approach. A method to value income-producing property based on anticipate future income. Market value equals expected annual income divided by the capitalization rate. For example, a rental property is anticipated to generate future annual income of $50,000. The capitalization rate is 8%. Market value equals $50,000/.08=$625,000. Approaches to real estate appraisal are the market comparison approach and cost approach.

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