What type of property is typically valued using the income approach?

The income approach is specifically designed to value properties that generate income, which makes it particularly well-suited for investment properties like rental units or commercial properties. This method evaluates the potential income that a property can produce, focusing on the cash flow and the capitalization rates associated with that income. Investors are often interested in the present value of future cash flows when considering the purchase of income-generating properties, making this approach highly relevant.

In contrast, residential properties such as single-family homes, vacant land, and properties intended for personal use are generally valued using different methods, such as the sales comparison approach or the cost approach. These methods focus more on comparable sales, replacement costs, and intrinsic value rather than potential income generation, making them less applicable for investment analysis.