In the income approach, what does MV represent in the formula MV = I / R?

In the formula MV = I / R, MV stands for Market Value. This formula is a key component of the income approach to property appraisal, which is used to determine the value of income-producing properties based on their ability to generate revenue.

In this context, I represents the income that the property generates, typically calculated as either potential gross income or net operating income. R is the capitalization rate, which reflects the expected return on investment for an income-producing property in the market. By rearranging the formula, you can see that Market Value is derived by dividing the income by the capitalization rate, illustrating how these elements interact to arrive at the property’s value.

Recognizing MV as Market Value is crucial for understanding how appraisers evaluate commercial properties, apartments, and other income-generating assets. This concept helps stakeholders make informed decisions regarding buying, selling, or investing in real estate based on its income potential.