Final answer:
For investment property of two- to four-family units, the Income Approach is typically used. It evaluates the property’s worth based on its income-producing potential, which is highly relevant for investors. Option b is the correct answer.
Step-by-step explanation:
The approach typically used for valuing an investment property of two- to four-family units is the Income Approach. This method focuses on the revenue-generating potential of the property, considering the property's ability to produce income through rent.
Using the income approach, an investor can assess the value of a property based on the net income it generates, often through techniques such as the capitalization rate (cap rate) or the gross rent multiplier (GRM).
The Income Approach is one of three main valuation methods used in real estate appraisal. It is especially favored for income-producing properties because it offers a direct correlation between the property's current and potential income and its value, which is particularly relevant to investors.
Unlike the Cost Approach, which estimates the cost of constructing a replica of the subject property, or the Market Approach, also known as the Comparable Sales Approach, which relies on the sales of similar properties in the area, the Income Approach is based on the economic principle that value is determined by the expectation of future benefits.