In appraising a three-unit dwelling and wanting to analyze its income, what approach would you use?

The correct approach for appraising a three-unit dwelling with a focus on its income is the Income Capitalization Approach. This method is specifically designed for income-generating properties, making it ideal for situations where you want to analyze the revenue that the property can produce.

In the Income Capitalization Approach, appraisers evaluate the potential income of the property and apply a capitalization rate to estimate the value. This involves determining the gross income, subtracting operating expenses to find the net operating income (NOI), and then applying the appropriate capitalization rate based on the specifics of the market and property. This approach provides a clear picture of the value of the property based on its ability to generate income.

While the Gross Rent Multiplier Approach is also focused on income, it is a simpler method that uses a multiplier to estimate value based on gross rental income. It does not delve into operating expenses and can obscure the net income picture, making it less comprehensive than the Income Capitalization Approach.

The Cost Approach would primarily be used in scenarios where the value of the land and the cost to reproduce the improvements are estimated, which is not specifically focused on income generation. Similarly, the Sales Comparison Approach compares the subject property to similar properties that have sold recently, which does not take direct