Full Definition
The income approach to valuation applies a market cap rate to a property's NOI to derive value. It's the primary valuation method for income-producing commercial real estate. Formula: Value = NOI / Cap Rate.
Related Terms
Cap Rate (Capitalization Rate)
The ratio of a property's Net Operating Income to its purchase price, expressed as a percentage. The primary metric for comparing commercial real estate investments.
NOI (Net Operating Income)
Annual income from a property after deducting operating expenses — before debt service, taxes, and capital expenditures.
Sales Comparison Approach
Valuation method based on recent sales of comparable properties. Used alongside the income approach.