Property Valuation
What is the relationship between cap rates and interest rates in Delaware commercial real estate?
ACap rates and interest rates are inversely related; when interest rates rise, cap rates fall
BCap rates generally increase when interest rates rise, as the return required by investors increases to stay competitive with debt costs✓ Correct
CThere is no meaningful relationship between cap rates and interest rates
DCap rates are fixed and do not respond to changes in interest rates
Explanation
Cap rates are influenced by interest rates. When interest rates rise, the required return on real estate investments typically rises as well (cap rates expand).
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Key Terms to Know
Capitalization Rate (Cap Rate)
A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.
Adjustable-Rate Mortgage (ARM)A mortgage with an interest rate that changes periodically based on a financial index, usually after an initial fixed-rate period.
AppraisalA professional estimate of a property's market value prepared by a licensed or certified appraiser.
Gross Rent Multiplier (GRM)A quick valuation metric for income properties calculated by dividing the property price by gross annual rental income.
Math Concepts
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