One of three appraisal methods used in commercial real estate to estimate the value of income-producing property. The Income Approach includes two methods. The first method, the Direct Capitalization Method, is a process whereby one year’s Net Operating Income is divided by a market Capitalization Rate to arrive at an estimated value.

The second method, uses the Discounted Cash Flow to calculate the present value of a real estate investment’s forecasted future income and reversion value. The Income Approach is the most common appraisal method used to evaluate income-producing real estate.