Income Approach Valuation Calculator

Work out income approach valuation instantly with clear inputs, formula shown and shareable results.

About Income Approach Valuation Calculator

Direct capitalisation values an income property as net operating income divided by the market capitalisation rate. Gross rent is first reduced for vacancy and credit loss to give effective gross income, then operating expenses are deducted. Because value is NOI divided by cap rate, a one point move in the cap rate changes value by more than ten percent.

Formulas

Net operating income

NOI = gross rent x (1 - vacancy) - operating expenses

Direct capitalisation

Value = NOI / capitalisation rate

Worked example

With the default values below, Income Approach Valuation Calculator returns Indicated market value of $5,152,000.00. Change any input above and every figure here is recalculated in your browser.

Inputs used

Annual gross rental incomeminimum 0: 600,000
Vacancy and credit lossaccepts 0–50 %: 8 %
Operating expensesaccepts 0–80 %: 30 %
Capitalisation rateaccepts 0.5–25 %: 7.5 %

Results

Indicated market value: $5,152,000.00
Net operating income: $386,400.00
Effective gross income: $552,000.00
Operating expenses: $165,600.00

Step by step

1Values used
2Net operating income
3Direct capitalisation
4Indicated market value= 5,152,000.00
5Net operating income= 386,400.00
6Effective gross income= 552,000.00
7Operating expenses= 165,600.00

Assumptions and limits

The result is derived only from the 4 inputs listed above. Anything not among them is not part of the calculation.
In particular, this calculator does not take inflation or tax into account.
Figures are rounded for display to 2 decimal places, so totals built from several rounded parts can differ slightly from the unrounded arithmetic.

How these calculators are built and tested is described on the Methodology page. If a figure looks wrong, please report it.

Frequently Asked Questions

How is the Income Approach Valuation figure worked out?

NOI = gross rent x (1 - vacancy) - operating expenses. Direct capitalisation values an income property as net operating income divided by the market capitalisation rate.

Is debt service part of operating expenses?

No. NOI is deliberately independent of how the property is financed, so mortgage payments, income tax and capital expenditure are all excluded.

What values do I need to enter?

This calculator takes 4 inputs: Annual gross rental income, Vacancy and credit loss, Operating expenses, Capitalisation rate. The pre-filled defaults are a realistic worked example — replace them with your own site or project figures.