ValuationIncome ApproachHARD
The capitalization rate (cap rate) used in the income approach represents:
Correct Answer
B) The rate of return an investor expects on a property investment
The capitalization rate is the rate of return expected by an investor for a particular type of property investment. It is calculated by dividing the net operating income (NOI) by the property value. A higher cap rate indicates higher risk and potentially higher return.
Answer Options
A
The mortgage interest rateB
The rate of return an investor expects on a property investmentC
The property tax rateD
The annual depreciation rateWhy This Is the Correct Answer
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Why the Other Options Are Wrong
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Related Topics & Key Terms
Related Topics:
NOIIRV-formularisk-returninvestment-analysis
Key Terms:
cap raterate of returnIRV formulariskinverse relationship
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