Income Approach
Learn about the income approach in Canadian real estate appraisal — what it is, when it’s used, and how it values income-producing properties.
August 08, 2025
What is an Income Approach?
The income approach is a property valuation method that estimates value based on the income the property is expected to generate.
Why an Income Approach Matters in Real Estate
In Canadian real estate appraisal, the income approach is commonly used for investment properties like rental buildings or commercial assets.
Key points:
- Calculates value by capitalizing net operating income (NOI)
- Requires accurate income and expense data
- Sensitive to changes in vacancy rates and market rents
Understanding the income approach helps investors evaluate potential returns and property values.
Example of an Income Approach in Action
The appraiser used the income approach to value the apartment complex by capitalizing its net operating income.
Key Takeaways
- Estimates property value based on income potential
- Common for rental and commercial properties
- Relies on accurate financial data
- Sensitive to market conditions and vacancy
- Useful for investment decision-making
Related Terms
- Net Operating Income
- Capitalization Rate
- Market Value
- Vacancy Rate
- Debt Coverage Ratio (DCR)
