Valuating an income property - the Income Approach

In a recent seminar with Dimitry Omrin, an appraiser from the Real Estate Consulting Group of Canada, the informative session focused on what an appraiser look for in Real Property Valuation.

After a purchaser buys a property, the mortgage lender sends out an appraiser to review the property before the loan is finalized. He or she will compare the property you are buying to recent sales in the area. If the intended use for the property is to generate income from leases, the income valuation method is most commonly used. The  cap rate and the asking price are inversely related. Where you have an income property under consideration, the investor can see if the asking price can be justified using the desired cap rate to generate income. In Toronto, the average cap rate on average falls in the range of 3.5% -6%. For owner occupied properties, even less. 

The Income Valuation is only one method to weigh the value of the property for your investors prior to a purchase. Other factors such as condition of the property, improvement cost etc. will play a factor for the final numbers.