Income Approach

Definition

The income approach (also called the income capitalization approach) values property by analyzing its ability to generate income. The appraiser calculates the property's net operating income (NOI) by subtracting operating expenses from gross income, then divides by a capitalization rate to arrive at an estimated value: Value = NOI ÷ Cap Rate. This approach is most appropriate for income-producing properties such as apartment buildings, office buildings, and retail centers. It is rarely used for single-family homes.