Property Valuation
A Morgantown, WV investor is offered a property with a 6% cap rate compared to similar properties selling at 8% cap rates. The 6% cap rate property is:
AA better investment because lower cap rates indicate higher quality
BPriced higher relative to its income than comparable properties — potentially overpriced✓ Correct
CUnderpriced since lower cap rates mean lower risk
DPriced correctly because cap rates are irrelevant in college markets
Explanation
A lower cap rate than comparable properties suggests the subject is priced higher relative to its income. If market cap rates are 8% and this property is offered at 6%, investors are being asked to pay a premium.
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