Real Estate Appraiser
01-26-2006, 06:54 PM
Income capitalization approach
The income capitalization approach, often simply called the income approach, is used to value commercial and investment properties. This appraoch capitalizes an income stream into a present value. This can be done using revenue multipliers or single-year capitalization rates of the net operating income.
The Net operating income (NOI) is gross potential income (GPI), less vacancy (= Effective Gross Income) less operating expenses (but excluding debt service or depreciation charges applied by accountants).
Alternatively, multiple years of net operating income can be valued by a discounted cash flow analysis (DCF) model. The DCF model is widely used to value larger and more expensive income-producing properties, such as large office towers.
The income capitalization approach, often simply called the income approach, is used to value commercial and investment properties. This appraoch capitalizes an income stream into a present value. This can be done using revenue multipliers or single-year capitalization rates of the net operating income.
The Net operating income (NOI) is gross potential income (GPI), less vacancy (= Effective Gross Income) less operating expenses (but excluding debt service or depreciation charges applied by accountants).
Alternatively, multiple years of net operating income can be valued by a discounted cash flow analysis (DCF) model. The DCF model is widely used to value larger and more expensive income-producing properties, such as large office towers.