Property Valuation
A commercial property in Dayton, Ohio generates $90,000 NOI at a 9% cap rate. If the cap rate drops to 7.5%, the property value would:
ADecrease because a lower cap rate means less return
BIncrease — a lower cap rate means buyers pay more per dollar of income✓ Correct
CStay the same
DDecrease proportionally to the NOI
Explanation
Value = NOI / Cap Rate. At 9%: $90,000 / 0.09 = $1,000,000. At 7.5%: $90,000 / 0.075 = $1,200,000. Lower cap rates reflect more investor demand and result in higher property values.
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