Which method of land valuation assesses the future ability of land to generate income?

The land residual capitalization method is focused on assessing the future income-generating potential of land, which makes it particularly relevant for investment properties. This approach involves estimating the potential net income that a property can generate, deducting all expenses associated with the property, and then capitalizing that net income to arrive at a value estimate. This method emphasizes the economic potential of the land based on its ability to produce income, rather than merely comparing it to recent sales of similar properties or relying on general market trends.

In contrast to the land residual capitalization method, the sales comparison method evaluates property values based on the sale prices of comparable properties in the market. The allocation method is typically used to determine the value of a parcel of land by analyzing the overall value of a property and allocating a portion of that value to the land based on its contribution to the overall value. The abstraction method involves estimating the value of a piece of land by subtracting the value of any improvements or buildings from the total property value, rather than focusing solely on future income potential.

The land residual capitalization method's focus on future income aligns well with investment analysis and financial forecasting, which is why it is the correct approach in this scenario.