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
To transfer a property title by deed or other instrument to another party. ...
Changing property ownership. An example is the sale of a home to another. ...
System of interconnected pipes, radiators, and/or ducts designed to heat a building utilizing a main heating unit. The system is controlled through a thermostat that regulates the ...
Unable to sell an investment to obtain cash in the short-term without incurring A significant loss. Real Estate is typically not liquid because of the inability to sell property to raise ...
Something that is hidden or overlooked and may be realized at a later time. For example, an individual's name is improperly spelled on a title deed, and the oversight is not noticed until ...
Representation on a flat surface of any region that depicts the elevation of that region. ...
The use of borrower funds by people or business to increase the return on an investment. Examples are a mortgage to purchase real estate and buying real estate stock on margin. ...
To understand what a principal broker is, we have to go back up the family tree of real estate.You do understand all brokers can be real estate agents, but not every real estate agent can ...
loan that is not secured by a mortgage on a specific property. It is backed only by the borrower's credit rating. Unsecured loan are typically short term. The disadvantages of this kind of ...
Have a question or comment?
We're here to help.