A few months ago, we covered the basics on valuing properties. Since then, we have managed to expand our knowledge on the issue and will be introducing an alternative method of valuation. On a broader level, there are 2 general approaches to value real estate property – Market Approach and Income Approach. The Market Approach is what we have covered previously and we will focus on the Income Approach this time. As the name implies, this method values a property based on the rental income it can earn during its life. There are 2 methods under the Income Approach.

Direct Capitalization

By applying a multiple to the annual rental income, we will be able to capitalise it and estimate a fair value for the property. Of course, there are fancy, technical names for the multipliers which you will see later, but the concept is a simple one. We can employ ......