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 term proxy comes from the power of attorney by which the holder of stockholders in a real estate company transfers voting rights to another stockholder. A proxy fight may arise in which ...
Method of selling and obtains possession, but the seller retains the title. ...
Legal obligation to pay taxes associated with owning property or earning income. For example, a real estate owner must pay property taxes. ...
Mortgage placed on a property after a previous mortgage. It can be a second, third, etc. mortgage. A junior mortgage is subordinate to the terms of a previous mortgage. Junior mortgages ...
Steps taken to remove someone from the real property who does not have a contractual basis to be there. An example is the landlord removing homeless people who have moved into a vacant ...
Residential structure designed to house more than one family. Smaller multifamily housing units include duplexes, triplexes, and quadriplexes. Larger multifamily housing is normally termed ...
Unregistered stock or bond that pays the holder dividends (if stock) or interest (if bonds) as well as the selling price when sold (if stock) or principal (if bonds are held to maturity). ...
Category of property zoning that designates property to be used for industrial purposes. Industrial zoning allows manufacturing, research and development purposes, factory office and ...
A recorded plat defines a subdivision map that you have to file in the county recorder’s office. It will show the location and boundaries of your parcels of land. Knowing this, we can ...
Have a question or comment?
We're here to help.