Which method is commonly used to estimate the value of income properties?

The income approach is the appropriate method for estimating the value of income properties because it directly considers the revenue-generating potential of the property. This approach involves analyzing the income that the property can produce, typically through rent or leasing, and calculating its value based on this income.

In applying the income approach, an appraiser will typically use various financial metrics such as net operating income (NOI), capitalization rates, and cash flow analysis. This method is particularly useful for investors who are interested in the profitability of the property rather than its cost to construct or its sales history.

Investors and appraisers favor the income approach for income-producing properties like apartment complexes, office buildings, and retail centers because it aligns the property’s value with its ability to generate income, which is the primary concern for such investments.