Income Approach
An appraisal method that estimates value by dividing a property's net operating income by the capitalization rate.
The income approach values income-producing property by dividing net operating income by the capitalization rate. Net operating income is income minus operating expenses, and it never includes mortgage debt service.
It is the primary method for rental and investment property such as apartment buildings and office space.
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- Capitalization Rate (Cap Rate)
The rate of return on an income property, equal to net operating income divided by value.
- Gross Rent Multiplier (GRM)
A quick valuation tool equal to sale price divided by gross rent, using gross income rather than net.
- Sales Comparison Approach
An appraisal method that estimates value by comparing the subject to recent sales of similar properties and adjusting the comparables toward the subject.
This definition is Texas real estate exam-prep education, not legal, tax, or professional advice. Verify current rules against the official source before relying on them for a real transaction. Back to the full glossary.