Income approach

The Income Approach is one of three major groups of methodologies, called valuation approaches, used by appraisers. It is particularly common in commercial real estate appraisal and in business appraisal. 
GRM is useful for rental housesand properties when used as a supplement to other more well developed methods.

The fundamental math is similar to the methods used for financial valuation, securities analysis, or bond pricing. However, income producing real estate, there are some significant and important modifications when used in real estate or business valuation the NOI is the net income of the real estate.

While there are quite a few acceptable methods under the rubric of the income approach, most of these methods fall into three categories: direct capitalization, discounted cash flow, and gross income multiplier. Or not the business interest plus any interest expense and non-cash items minus a reserve for replacement. 

The CAP rate may be determined in one of several ways, including market extraction, band-of-investments, or a built-up method. If several similar properties have sold in the market recently, then the GRM can be computed for those and applied to the anticipated monthly rent for the subject property.