The income approach values real estate based on its income-producing potential — typically via cap rate on NOI for stabilized multifamily. The dominant valuation method for LA multifamily.
Two primary techniques: direct capitalization (NOI / cap rate = value) and discounted cash flow (present value of projected cash flows including exit sale). Direct cap is simpler and more common for stabilized multifamily; DCF is used for value-add and more complex underwriting.
LA multifamily valuation is fundamentally income-approach driven. Buyer and broker underwriting both start with NOI and apply appropriate cap rates based on submarket, regime, and property profile. Sales comparison is a sanity check, not the primary method.
From the Sterman LA Multifamily Glossary — defined the way a broker with $1.41 billion across 254 closed transactions actually uses these terms.
Michael Sterman, Senior Managing Director Investments, Marcus & Millichap.
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