Property Management
A capitalization rate of 5% compared to a 10% cap rate on two identical income properties indicates that the property with the 5% cap rate is:
AGenerating less income
BWorth less
CWorth more because investors accept a lower return for it✓ Correct
DLocated in a more risky market
Explanation
A lower cap rate means investors are willing to accept a lower return, typically indicating a higher-quality, lower-risk property in a desirable market — which commands a higher price relative to its income.
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