Free Income Approach Calculator
Value an income-producing property by capitalizing its net operating income at a market-derived cap rate.
USD
%
USD
%
Indicated Property Value
$557,143
Net Operating Income$39,000
Effective Gross Income$57,000
Indicated Property Value vs Market Cap Rate
Income Approach to Value
The income approach (direct capitalization) converts a property's income stream into a value estimate using a cap rate derived from market data.
Steps
1. Start with gross annual income 2. Subtract vacancy allowance to get effective gross income 3. Subtract operating expenses to get net operating income (NOI) 4. Divide NOI by the market cap rate to get property value
Formula
Value = NOI / Cap Rate
Example Calculation
A duplex generates $60,000 gross income, with 5% vacancy, $18,000 expenses, and a 7% market cap rate.
- 01Effective gross income: $60,000 x (1 - 0.05) = $57,000
- 02Net operating income: $57,000 - $18,000 = $39,000
- 03Property value: $39,000 / 0.07 = $557,143