Which factor does the income approach consider primarily for valuation?

The income approach primarily focuses on the potential income generation of a property as a key factor for valuation. This method is particularly relevant for income-producing properties like rental buildings, commercial real estate, and investment properties.

In this approach, an appraiser assesses the expected revenue that the property can generate over time, factoring in aspects such as rental rates, occupancy rates, and operating expenses. The idea is to estimate the value of the property based on its ability to produce cash flow, which is particularly essential for investors and stakeholders seeking a return on investment.

By using metrics such as the capitalization rate or discounted cash flow analysis, the income approach provides an estimate of value that reflects the earning potential of the property rather than its physical characteristics or historical performance. This makes it distinct from methods that focus on cost or sales comparisons, as those approaches do not directly consider the income aspect that is central to the income approach.