Which appraisal approach focuses on the income generated by an investment property?

The income approach is the correct method for determining the value of an investment property based on the income it generates. This approach is particularly relevant for properties such as rental homes, commercial buildings, and multifamily units, where the primary concern for investors is the potential for cash flow and return on investment.

In this approach, appraisers analyze the expected income that the property can produce, which involves estimating net operating income and applying a capitalization rate to determine value. This reflects the value that an investor might place on the property based on its capacity to generate revenue, making it a crucial method for valuing income-producing properties.

The other methods mentioned, such as the cost approach, focus on the cost to construct a property or the cost of land and structure, while the sales comparison approach relies on comparing similar properties that have recently sold to determine value. The investment approach might seem relevant, but it is not a formally recognized appraisal method in the context of standard appraisal practices, which has contributed to the preference for the income approach when valuing investment properties.