Which assessment method is often used for residential rental properties?

Which assessment method is often used for residential rental properties?

• A. Cost approach
• B. Income approach
• C. Competitive market analysis
• D. Declining market assessment

Answer: (B)

The income approach is frequently used for assessing residential rental properties because it focuses on the property's potential to generate income. This method involves estimating the income the property can produce, often based on current or projected rental income, and factoring in operating expenses. By capitalizing this income, typically through a capitalization rate derived from similar rental properties, appraisers can determine the property's value based on its ability to generate cash flow rather than solely on the physical characteristics or comparable sales. This approach is particularly relevant for investors looking at residential rental properties, as it directly relates to the investment potential and return on investment that the property can offer. Thus, it is a prime consideration in real estate evaluation and investment analysis when income generation is a primary concern.

The income approach is frequently used for assessing residential rental properties because it focuses on the property's potential to generate income. This method involves estimating the income the property can produce, often based on current or projected rental income, and factoring in operating expenses. By capitalizing this income, typically through a capitalization rate derived from similar rental properties, appraisers can determine the property's value based on its ability to generate cash flow rather than solely on the physical characteristics or comparable sales.

This approach is particularly relevant for investors looking at residential rental properties, as it directly relates to the investment potential and return on investment that the property can offer. Thus, it is a prime consideration in real estate evaluation and investment analysis when income generation is a primary concern.