Income Approach

Appraisers using the income approach work backward from rent: they take net operating income and divide by a local cap rate, or apply a multiplier to gross rent. BRRRR investors meet it on small multifamily and commercial refinances, where rent can support or limit the appraised value.

On the default deal, net operating income is about $32,600 a year. Capitalize that at 6.5% and the answer lands close to $500,000. Move the rate to 7% and it drops to roughly $466,000. A higher local cap rate or lower rent pulls the income value down.

For single-family homes, appraisers lean on the sales comparison approach, and income is a secondary check at most. Buildings of five units or more are mostly valued on income, so there the rehab adds value by lifting rent and trimming expenses.

Further reading: Income Approach on Wikipedia.