Question

in general, what effect would a reduction in risk have on going-in cap rates? what would this effect be if it occurred at the same time as an unexpected increase in demand? what would the effect on property values be?

Answer 1

Because expected profits are lower when risk is reduced, capitalization rates fall. If this happened during a period of increased demand, property prices would climb dramatically due to higher rents from increased demand and reduced capitalization rates.

• The capitalization rate is computed by dividing the net operational income of a property by its current market value. This percentage ratio is an estimate of an investor's prospective return on a real estate investment.
• The capitalization rate is a real estate valuation metric that is used to compare various real estate investments. Although there are numerous variations, the cap rate is commonly computed as the ratio of a real estate asset's yearly rental revenue to its current market value.
• The capitalization rate is computed by dividing the net operational income of a property by its current market value. This percentage ratio is an estimate of an investor's prospective return on a real estate investment.

Thus this is the meaning of capitalization rate.

To learn more about capitalization rate, refer: https://brainly.com/question/25603207

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