Concepts Definitions
nnnnIncome Approach to Value (Capitalization Method): One of the three main methods of appraisal, where an estimate of a property’s value is based on the net income it produces. It uses future benefits (income) to define present value.
nnnnNet Operating Income (NOI): The income remaining after subtracting all operating expenses (fixed and variable) from the property’s effective gross income.
nnnnContract Rent: The rent amount explicitly stated in a lease agreement.
nnnnEconomic Rent (Market Rent/Potential Gross Income): The estimated rent a property could command if it were available for lease in the current market, assuming 100% occupancy.
nnnnQuantity of Income (Rent Amount): Refers to the actual monetary amount of rent generated by the property.
nnnnQuality of Income (Credit Rating of Tenant): Pertains to the reliability of the tenant to make timely rent payments, often assessed by their credit rating.
nnnnDurability of Income (Lease Term): Refers to the stability and length of the lease agreement, indicating how long the income stream is expected to continue.
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