Property Valuation
What is an 'income approach' discount rate versus a capitalization rate?
AThey are the same thing in all cases
BA discount rate converts future income streams to present value; a cap rate converts a single year's NOI to a value estimate✓ Correct
CA discount rate applies to residential properties; cap rate applies to commercial
DThe discount rate is always higher than the cap rate
Explanation
A discount rate is used in discounted cash flow (DCF) analysis to convert projected future income and sale proceeds to present value. A capitalization rate directly converts one year's stabilized NOI to a value estimate.
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