What approach should an appraiser use when estimating depreciation on an older rental property without comparable sales?

When estimating depreciation on an older rental property without comparable sales, the income approach is particularly valuable. This approach focuses on the income generated by the property rather than its market value through direct comparison.

In the income approach, an appraiser analyzes the potential income the property can generate, typically through rental revenue, and then estimates expenses, vacancy rates, and overall property management costs. By assessing the net operating income (NOI), the appraiser then determines the value of the property based on its ability to generate income over time.

This method is especially relevant for older rental properties where market comparables may not exist or may not reflect the actual revenue-generating potential of the property. In circumstances where direct sales data is limited, the income approach provides a framework to evaluate the depreciation based on actual performance and projected future income.

Other methods, such as the cost approach or sales comparison approach, may not be as applicable in this specific context due to a lack of reliable sales data or the necessity to account for actual income generated, thereby confirming the suitability of the income approach for estimating depreciation in this scenario.