Legal Definitions - income approach

The income approach is a method used to evaluate the value of a property based on the income it is expected to generate. This approach is commonly used by real estate appraisers and investors to determine the potential return on investment.

For example, if an apartment building generates $100,000 in annual rental income, an appraiser may use the income approach to determine the property's value. The appraiser would consider factors such as the vacancy rate, operating expenses, and potential rental income to estimate the property's future income stream. Based on this analysis, the appraiser would then determine the property's value using a capitalization rate.

The income approach is often used for commercial properties, such as office buildings, shopping centers, and industrial warehouses. It is also used for rental properties, such as apartments and single-family homes.