Income Approach

Definition: The income approach estimates property value from the income or economic benefits the property is expected to produce. Direct capitalization is one method within this approach.

Example

Using direct capitalization, $48,000 of annual NOI divided by an 8% capitalization rate indicates a value of $600,000.

Keep the distinction clear

For direct capitalization, use NOI and express the cap rate as a decimal. Gross rent multipliers use gross rental income instead, so the inputs and methods must not be mixed.

Related terms

Net Operating Income (NOI) · Capitalization Rate (Cap Rate) · Gross Rent Multiplier (GRM)

Keep studying

Income Approach: NOI, Cap Rate, Property Value, and Cash-on-Cash Return

References: OCC: Commercial Real Estate Lending handbook

Pronunciation (US): IN-kum uh-PROHCH (capitals show stress)

Pronunciation reference: Merriam-Webster