What type of property typically uses the income approach for valuation?

The income approach for valuation is most commonly applied to rental or investment properties because it focuses on the income-generating potential of the property. This method assesses the value based on the revenue that the property can produce, typically through rents collected from tenants.

For rental properties, the value is derived from the net operating income (NOI), which is calculated by taking the annual rental income and subtracting operating expenses. This approach reflects the financial performance and profitability of the property, making it particularly relevant for investors who prioritize cash flow and return on investment.

While commercial retail spaces could also use the income approach, as they often generate rental income, the answer emphasizes rental or investment properties in a broader sense, which encompasses various types of income-producing real estate. On the other hand, residential properties, vacant land, and commercial retail spaces may not always be primarily valued based on income, as residential properties often consider comparable sales values, and vacant land does not generate income until developed or sold.