Income Approach

The income approach values a property from the income it produces, most often by dividing net operating income by a market capitalization rate. It is the appraisal method closest to how a DSCR lender thinks, since both start from what the property earns.

Net operating income of $28,500 at a 5.7% cap rate indicates a value of $500,000. A lower cap rate or higher income raises the value; a higher cap rate lowers it. Commercial appraisals lean on this method heavily.

For one-to-four unit rentals, appraisers usually weight the sales comparison approach most, with a gross rent multiplier as a check. The income figures still matter to a DSCR lender through the rent schedule, since that estimate sets the numerator of the ratio.

Further reading: Income Approach on Wikipedia.