Which method estimates the value of a property by applying a rate of return to the net income it produces?

The income capitalization approach is the correct method for estimating the value of a property based on the income it generates. This approach involves calculating the net operating income (NOI) of the property and then applying a capitalization rate (cap rate) to that income. The cap rate reflects the investor's expected rate of return on the property. Essentially, this method translates the property’s ability to generate income into its overall value, making it particularly useful for investment properties.

By using this approach, investors can assess the potential profitability of a property, which is fundamental in making informed purchasing decisions. This technique is often employed for commercial properties and rental units where the income generated is a significant factor in determining the investment's attractiveness.

In contrast, the cost approach assesses property value based on the cost to replace or reproduce it, while the sales comparison approach looks at recently sold comparable properties to determine value. Market analysis involves a broader evaluation of market trends and conditions but does not specifically focus on the income aspect of a property.