Real estate valuation approaches -income approach

💼 Real Estate Valuation – Income Approach (Short Version) 💡 Definition: The Income Approach values a property based on its ability to generate future income, typically used for commercial or rental properties. Key Steps: 1️⃣ Estimate Potential Gross Income (PGI) 💰 Total income the property can generate (e.g., rent). 2️⃣ Deduct Vacancy & Collection Losses 📉 Arrive at Effective Gross Income (EGI). 3️⃣ Subtract Operating Expenses 🏢 Include maintenance, insurance, property taxes, management fees. 4️⃣ Calculate Net Operating Income (NOI) 📊 NOI = Effective Gross Income − Operating Expenses 5️⃣ Apply Capitalization Rate (Cap Rate) 🔢 Cap rate reflects risk and return expectations for similar properties. Key Formula: Advantages: Reflects income potential and investment value Useful for commercial and rental properties Market-driven and widely accepted Limitations: Requires accurate income and expense data Sensitive to cap rate assumptions Less suitable for owner-occupied residential properties Key Insight: The Income Approach estimates property value based on expected returns, emphasizing financial performance over physical attributes ✅ 🌐 www.manifestedkasneb.com 📞 +254 724 173 845 #RealEstate #Valuation #IncomeApproach #KASNEB #ExamPreparation