Income Approach

Definition

• One of the steps in the valuation process of an income property. The estimate of value is reached by estimating the annual income less an allowance for vacancies and bad debts and subtracting annual operating expenses, real estate taxes and insurance premiums to obtain the net operating income. This is then converted by capitalization into a capital value.

Synonyms
profit calculation, net gain

Related Terms and Acronyms

• Adjusted Cost Basis — Definition,
  • The amount paid for an item, plus the amount paid for improvements, minus losses and depreciation. When the owner sells the item, the difference between the sales price and the adjusted cost basis is the profit or loss.
• Break-Even Point (BEP) — Acronym,
  • The point at which expenses meet income or savings. In home finance, the break-even point often refers to the time it takes to recoup the costs of refinancing a loan or paying discount points.
• Income Property — Definition,
  • Real estate developed or improved to produce income. Also referred to as "non-owner occupied property" or "rental property."
• Return on Investment (ROI) — Acronym, Very Important,
  • The profit an investment generates, expressed as equity divided by cash flow.