Which approach considers the recapture rate when estimating value?

The income approach to estimating value is grounded in the concept of capturing future income streams generated by the property. This method places significant emphasis on the recapture rate, which is essentially the rate at which investors expect to recover their investment over time. It incorporates factors such as potential rental income, operating expenses, and expected growth in income. By focusing on the income produced by a property, this approach evaluates its worth based on the present value of future cash flows, adjusting for risks and anticipated returns, including how soon and effectively an investor can recoup their initial investment.

The market approach compares the property to similar properties that have recently sold, without a specific focus on income generation or recapture. The cost approach estimates value based on the cost to replace the property, factoring in land and construction costs, also not prioritizing the recapture aspect. The gross rent multiplier (GRM) offers a simplified method for valuing income properties but does not provide a comprehensive view of recapture and the full income-generating potential over time. This makes the income approach the most suitable choice for considering the recapture rate in value estimation.