1. What is the Income Approach to Property Valuation?

The income approach estimates property value based on its ability to generate revenue. This method is particularly useful for rental properties and commercial real estate, where the primary value comes from income generation potential.

2. How Does the Calculator Work?

The calculator uses the income approach formula:

Where:

• \( NOI \) — Net Operating Income (annual revenue minus operating expenses)
• \( Cap\ Rate \) — Capitalization Rate (market-derived rate of return)

Explanation: The formula calculates property value by dividing the net operating income by the capitalization rate, which represents the investor's required rate of return.

3. Importance of Property Valuation

Details: Accurate property valuation is essential for investment decisions, financing, insurance purposes, tax assessment, and sales transactions. The income approach specifically helps investors evaluate the profitability of income-generating properties.

4. Using the Calculator

Tips: Enter the net operating income in EUR per year and the capitalization rate as a decimal (e.g., 0.08 for 8%). Both values must be positive numbers for accurate calculation.

5. Frequently Asked Questions (FAQ)

Q1: What is included in Net Operating Income?
A: NOI includes all rental income minus operating expenses such as property taxes, insurance, maintenance, and management fees, but excludes mortgage payments and income taxes.

Q2: How is the capitalization rate determined?
A: Cap rates are typically derived from comparable property sales in the same market. They vary by location, property type, and market conditions.

Q3: What is a typical cap rate range?
A: Cap rates typically range from 4% to 12%, with lower rates indicating lower risk properties in stable markets and higher rates indicating higher risk or less desirable properties.

Q4: Are there limitations to this valuation method?
A: This approach works best for income-producing properties and may not accurately value owner-occupied residential properties where comparable sales approach is typically preferred.

Q5: How does Eircode number affect property value?
A: While Eircode identifies location, property value is influenced by specific location factors such as neighborhood desirability, proximity to amenities, and local market conditions that the Eircode represents.