Valuation based on income potential
The income approach focuses on the central question: What is the property's value based on its sustainably achievable rental income? The income value is composed of the land value and the building income value — i.e., the present value of the building's future net income.
The method is standardized in the ImmoWertV 2022 (§§ 27–34) and is used for all property types where the return expectation is decisive for the market price: multi-family houses, commercial buildings, office buildings, retail, logistics, and mixed-use buildings.
Income value — simplified formula:
Income value = land value + building income value
Building income value = net income ÷ capitalization rate (Liegenschaftszinssatz)
The net income results from gross income (annual rent) less operating costs.
Income approach
in the full appraisal report
- Income approach pursuant to ImmoWertV
- Sustainable rental value determination
- Market-conforming capitalization rate (Liegenschaftszinssatz)
- Court-recognized & bank-approved
- Complete documentation
When is the income approach applied?
The income approach is always the leading method whenever the return expectation determines the market price.
Multi-family houses
For rented residential buildings with two or more units, the income approach is the standard method. The value is derived directly from the rent level and the market-standard capitalization rate.
Commercial buildings & retail
For mixed-use buildings and retail properties, income forms the central value determinant. Lease term, tenant creditworthiness, and vacancy risk are factored into the valuation.
Office & commercial properties
The valuation of office and commercial properties is based on the sustainable net cold rent, the location-specific capitalization rate, and the vacancy potential in the submarket.
Logistics & warehouse
For logistics and warehouse facilities, the income approach is applied using property-specific market rents, operating costs, and remaining useful life.
Mortgage lending value report
Credit institutions require the income approach for rented properties as the basis for the mortgage lending value pursuant to § 16 PfandBG — using sustainable rent assumptions and conservative interest rates.
IFRS & fund reporting
Institutional clients (funds, insurance companies) use the income approach to calculate fair value under IFRS 13 Level 3 and for the NAV determination of open-ended real estate funds.
Process of income value determination
Land value determination
Determination of the land value based on the standard land values (Bodenrichtwerte) of the local expert committee (Gutachterausschuss), with corrections for location, layout, and development where applicable.
Application of sustainable rent
Determination of the local comparable rent or the sustainable rental income — independent of any over- or under-renting in the existing tenancy.
Operating costs
Deduction of non-recoverable costs: management, maintenance, rent loss risk, and other operating costs pursuant to the Second Calculation Ordinance (II. BV) or market standard.
Capitalization rate (Liegenschaftszinssatz)
Application of the market-standard capitalization rate published by the expert committee (Gutachterausschuss) or a market-based individual determination. The rate reflects location, use type, and investment risk.
Income value & plausibility review
Combination into building income value + land value = income value. Plausibility review using comparable transactions and, where applicable, a cost approach correction factor.
Frequently asked questions about the income approach
Does the income approach also apply to residential buildings?+
Yes. The income approach is used as the leading method for all rented residential buildings with two or more units. It can also be applied supplementarily to owner-occupied single-family homes if third-party rental would be customary in the market.
What happens if the property is vacant?+
In the income approach, the sustainably achievable rent is applied — not the current actual rent. Temporary vacancy therefore only affects the value through the rent default risk allowance. However, permanent structural vacancy is taken into account as a value-reducing factor.
Where does the property yield rate (Liegenschaftszinssatz) come from?+
The property yield rate is derived by the responsible expert committee (Gutachterausschuss) from actual purchase prices and rents and published in the land market reports (Grundstücksmarktberichte). Where no committee values are available, we derive the rate from comparable transactions and provide a comprehensible justification.
Is the income approach recognized by courts?+
Yes. The income approach is legally standardized (ImmoWertV) and is accepted by courts, tax authorities, and banks as a recognized valuation method. A comprehensible justification of all value inputs is essential.
Request an income approach appraisal report
We prepare the market value appraisal using the income approach for your investment property — court-compliant, bank-approved, and fully documented.
