Which technique is used for capitalizing the net income of property into an estimate of value?

The technique used for capitalizing the net income of property into an estimate of value is known as the capitalization of income method. This approach specifically focuses on the income generated by property as the primary indicator of its value. By analyzing the property's potential income, which typically includes rental income, operational income, and other relevant revenue streams, an assessor can apply a capitalization rate. This rate is determined by market factors and the associated risks of the investment.

Through this method, the net income is divided by the capitalization rate to arrive at an estimate of value. This is fundamentally grounded in the principle that the value of an investment property is directly related to the income it generates. Consequently, it is particularly useful for income-producing properties such as commercial real estate and rental units, where understanding the revenue potential is essential for accurate valuation.

In contrast, other techniques, such as the economic age-life method, focus on depreciation estimations rather than direct income capitalization. The sales comparison approach relies heavily on comparable sales data instead of income metrics, while the breakdown method is more focused on component costs rather than income capitalization. Thus, the capitalization of income method stands out as the most relevant and effective for relating net income to property value.