Property Valuation
What does a capitalization rate (cap rate) measure in real estate investment analysis?
AThe ratio of mortgage payment to gross income
BThe rate of return on a property based on its net operating income divided by its value✓ Correct
CThe percentage of the purchase price financed by the lender
DThe annual property tax rate
Explanation
The cap rate = Net Operating Income ÷ Property Value. It expresses the rate of return an investor expects, independent of financing, and is used to compare investment properties.
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