It's a way of saying "people in the market are willing to get 4% return on net income in an A area in this market, so if I know the net income of the 6 unit subject property, I can derive what someone would be willing to pay i.e. what it might be worth".Incidentally, when people talk about the "income approach" as one of the three appraisal methods (the others being sales comparables and replacement cost), it's usually introduced for exactly this scenario - that there are usually plenty of comps for 1-4 families and buyers are more likely to look at recent sales of similar properties to determine what they'll be willing to pay, but once you start looking at 5+ units there are both far fewer comps and the buyers are investors who really are looking at cash flow more than similar property sales.Anyway, I hope this helps.

@Jonathan R.

Is one method better than the other?

Adding to what he stated, in the following year you will receive a 1099-R the following year to claim on your tax return.  

You recommend the BRRR method primarily? 

We are currently closing on a townhouse in Northwest Indiana, and we are trying to figure out where to invest most of our money to be able to get the highest rate of return when refinancing. Do we start with the kitch...

It outlines creative methods for maximizing your real estate investments while limiting the cash you have to put down yourself.Best,Paul

The only difference is the timeline.The other thing I realized is that I only have to have the capital for the repairs with this method. 

If the state really wants people to start building a bunch of ADUs, shouldn't they also be encouraging appraisers to change their evaluation methods, for example comparing duplexes to SFHs with ADUs or comparing JADUs to traditional additions?

If the state really wants people to start building a bunch of ADUs, shouldn't they also be encouraging appraisers to change their evaluation methods, for example comparing duplexes to SFHs with ADUs or comparing JADUs to traditional additions?