2.3.3.5. Income Capitalization Approach.The appraisal report shall include adequate factual data to support each figure and factor used and should be arranged in detailed form to show at least (1) estimated gross economic (or market) rent, or income; (2) allowance for vacancy and credit losses; (3) an itemized estimate of total expenses; and (4) an itemized estimate of the reserves for replacements, if applicable. Section 1.5.4 discusses the income capitalization approach in detail. 

Capitalization of net income shall be at the rate prevailing for this type of property and location. The capitalization technique, method, and rate used should be explained in narrative form and supported by a statement of the sources of rates and factors. The preferred source of an applicable capitalization rate is from actual capitalization rates reflected by comparable sales.135 

As with a recent and unforced sale of the subject property (see Section 2.3.3.4), if the property is actually rented, its current rent is often the best evidence of its economic (or market) rent and should be given appropriate consideration by the appraiser in developing an opinion of the gross economic rent of the property. Likewise, the appraiser should attempt to obtain at least the last three years’ historical income and expense statements for the property. These

can generally be developed into a reliable reconstructed operating statement. If this historical income and expense information is available, it should be included in this portion of the appraisal report or in the addenda.