What is the income approach primarily used for?

The income approach is primarily utilized for valuing investment properties that generate rental income. This method evaluates a property’s potential to produce income, making it particularly suitable for commercial properties, multifamily units, and other real estate assets where generating revenue is a key characteristic. The approach typically involves calculating the net operating income (NOI) of the property, which is derived from the income generated after deducting operating expenses. This NOI is then capitalized to determine the property’s overall value.

This approach is not applicable to properties that do not generate income, such as personal residences or properties intended solely for personal use. While there are methods to estimate value for financing or tax purposes for these types of properties, they would not involve the income approach. Similarly, the validity of relying only on assessed value or values based primarily on non-income-generating attributes does not fit into the framework of the income approach, which focuses on the actual revenue potential of a property.