In real estate valuation, what is the Income Approach primarily based on?

In real estate valuation, what is the Income Approach primarily based on?

• A. The property's age
• B. Recent market trends
• C. Income property produces (NOI ÷ Cap Rate)
• D. Size and location of the property

Answer: (C)

The Income Approach to real estate valuation primarily focuses on the property's ability to generate income. This approach is particularly relevant for investment properties, where the value is determined by the net operating income (NOI) the property produces, divided by the capitalization rate (Cap Rate). The Cap Rate reflects the expected return on investment based on risk, making this method a crucial tool for investors assessing the profitability of a property. By focusing on the income produced by the property rather than physical characteristics like age, size, or market trends, this approach provides a direct correlation between investment potential and value. It is intended for properties that are bought primarily for income generation, such as rental buildings or commercial real estate, making it a core method of valuation in the real estate industry.

The Income Approach to real estate valuation primarily focuses on the property's ability to generate income. This approach is particularly relevant for investment properties, where the value is determined by the net operating income (NOI) the property produces, divided by the capitalization rate (Cap Rate). The Cap Rate reflects the expected return on investment based on risk, making this method a crucial tool for investors assessing the profitability of a property.

By focusing on the income produced by the property rather than physical characteristics like age, size, or market trends, this approach provides a direct correlation between investment potential and value. It is intended for properties that are bought primarily for income generation, such as rental buildings or commercial real estate, making it a core method of valuation in the real estate industry.