Which formula is used to estimate the value of property using the income approach?

The formula used to estimate the value of property using the income approach is based on the relationship between net operating income and capitalization rate. Specifically, value is computed by dividing the net operating income (NOI) of the property by the capitalization rate (Cap Rate). This method focuses on how much income a property generates, which is crucial for investment properties.

Net operating income represents the annual income generated by the property, minus operating expenses. The capitalization rate is a measure that reflects the expected return on investment based on the income the property produces. Thus, when you divide the NOI by the Cap Rate, you are essentially determining the value of the property as an investment, considering how much income it can generate over time.

This methodology is widely accepted in real estate appraisal for properties where income generation is a primary factor in determining value, such as rental properties or commercial real estate.

The other options represent different concepts that do not align with the income approach. For example, total revenue minus total expenses calculates profitability but does not directly relate to property value in the context of the income approach. Similarly, using sale price with an acquisition rate or summing construction costs with land value pertains more to the sales comparison approach and the cost approach respectively, rather than the income approach.