Final answer:
The income approach is used to determine the value of a rental property based on the income it generates or has the potential to generate.
Step-by-step explanation:
The approach to value that deals primarily with the amount of money an owner can receive from a rental property is the income approach.
This method focuses on the income-producing potential of a property, by looking at the rental income as well as other financial benefits the property might generate. Appraisers use the income produced, or that could be produced, from real estate to estimate its value.
They consider factors like rental rates, occupancy levels, operating expenses and consider the net operating income of the property to determine its value.
The approach to value that deals primarily with the amount of money an owner can receive from a rental property is the income approach.
The income approach is commonly used to determine the value of income-producing properties, such as rental properties. It takes into account the rental income generated by the property and calculates its value based on the expected income stream.
For example, if a rental property generates an annual rental income of $50,000, and similar properties in the area have a capitalization rate of 7%, the value of the property would be calculated as $50,000 divided by 7% (0.07), which equals $714,286.