Which method of property valuation is primarily based on incoming revenue streams?

The Income Method of property valuation focuses primarily on the potential income that a property can generate over time. This approach is particularly relevant for investment properties, such as rental units or commercial real estate, where the value is largely determined by the revenue streams the property produces. By assessing the net income the property can generate—taking into account factors like rent, operating expenses, and maintenance costs—valuation professionals can estimate its market value.

This method is grounded in the principle that investors will pay a price for a property based on the returns they expect to receive from it, which is quantified through metrics like the capitalization rate. Therefore, this approach is vital for investors seeking to understand the potential returns on their investment and is a standard method used in real estate appraisals for income-generating properties.

In contrast, other valuation methods such as the Direct Comparison Approach focus on comparing similar properties in the market, the Cost Approach estimates value based on the cost to replace the property minus depreciation, and the Market Rate Approach assesses property values relative to prevailing market conditions. Each of these methods serves different purposes and contexts but does not primarily center on incoming revenue streams in the way the Income Method does.