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INCOME APPROACH <br /> In the normal application of the Income Approach, an income history is developed by comparing <br /> the last two to three years' rental income with the current rental rates. A comparison is also made <br /> with current rents of comparable and competitive properties. From this analysis, a potential gross <br /> income is projected which would reflect 100 percent occupancy. A comparative rent study of <br /> comparable properties was done in order to determine projected market rents for the subject <br /> property. <br /> In addition,from the comparative rent study,a projected vacancy rate is derived.When the vacancy <br /> rate is applied, the potential gross income is reduced to an effective gross income. <br /> Expenses are also analyzed historically and currently, and then compared with expenses incurred <br /> by other property owners of similar properties. The effective gross income less the direct expenses <br /> yields a net operating income (NOI)which can be capitalized into an indicated value. <br /> An overall rate or capitalization rate,which reflects a typical buyer's rate of return requirement on <br /> his investment, is extracted from sales of income properties. This is done by dividing the net <br /> income of the sales by the sales prices. The most typical capitalization rate from the sales is then <br /> divided into the net operating income of the subject property to arrive at an indicated value. <br /> 41 DAVIS APPRAISAL COMPANY <br />