The Income Approach is primarily used to determine what?

• A. Replacement cost
• B. The property's income and expenses and expected income
• C. The land value
• D. The market value only

Answer: (B)

The Income Approach values a property based on its ability to generate cash flow. It looks at what the property earns now and what it is expected to earn in the future, then subtracts operating expenses to arrive at net operating income. That income is then converted into value using a capitalization rate (or a discounted cash flow), reflecting the return an investor would require. In short, value comes from the property's income, expenses, and expected income, which is why this method is the best fit for income-producing properties like rental buildings or commercial spaces.

Replacement cost focuses on what it would cost to recreate the building today, which is a different valuation method. Land value matters in some approaches but isn’t the primary driver of value in the income approach. Market value is the result, but the method centers on the income stream, not value in isolation.