when using the income approach for purchasing a rental property an investor must also consider the condition of the property potential large repairs that may be needed can substantially cut into future profits 
in addition an investor should consider how efficiently the property is operating for example the landlord may be giving tenants rent reductions in exchange for completing yard work or other responsibilities perhaps specific tenants are facing economic difficulties that should turn around in the next few months and the landlord does not want to evict them if rent being collected is not greater than current expenses the investor will most likely not purchase the property with the income approach the cap rate and estimated value have an inverse relationship lowering the cap rate increases the estimated valuean investor must also ascertain how many units on average are empty at any given time not receiving full rent from every unit will affect the investor s income from the property this is especially important if a property is in great need of repairs and many units are vacant suggesting a low occupancy rate if the units are not filled on a regular basis rent collection will be lower than it could be and purchasing the property may not be in the investor s best interest example of the income approachwith the income approach an investor uses market sales of comparables for choosing a capitalization rate for example when valuing a four unit apartment building in a specific county the investor looks at the recent selling prices of similar properties in the same county after calculating the capitalization rate the investor can divide the rental property s noi by that rate for example a property with a net operating income noi of 700 000 and a chosen capitalization rate of 8 is worth 8 75 million 