UK Accounting Glossary
Income property is real estate held as part of an investment portfolio because of its particular cash flow characteristics. Income property is usually considered a conservative real estate investment, much like a bond, because it produces a steady stream of income. An established, leased multifamily dwelling is the classic example of an income property. The value of an income property depends heavily upon its net operating income, or NOI. Valuation of income property is determined by considering the net operating income of the income property and the cap rate for comparable properties, where the cap rate is defined as the ratio of NOI to price. Not all investment property is an income property. For example, neither distressed property bought for fix-up and resale (rather than lease), nor property held for appreciation that produces no income (such as vacant land) would be considered an income property.
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This glossary post was last updated: 9th February 2020.