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Economist Stammers go on to say to understand how government-influenced interest rates, capital flows and financing rates affect property values, you should have a basic understanding of the income approach to real estate values. The income approach provided by appraisers of income rental properties is the discounted cash flow analysis.

In simple terms, the valuation starts by forecasting property income, which takes the form of anticipated rental income. Then, by taking all property-level costs, including the financing cost, the analyst arrives at the net operating income (NOI), or cash flow remaining after all operating expenses.

By subtracting all capital costs, as well as any investment capital to maintain or repair the property and other non-property-specific expenses from NOI, the result is the net cash flow available to investors. By discounting the cash flow stream for a given investment period, the property value is determined.

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