Property Valuation
In the income approach to value, what does the capitalization rate represent?
AThe property's gross rent multiplier
BThe rate of return an investor expects from the property✓ Correct
CThe property tax rate set by the municipality
DThe loan-to-value ratio used by lenders
Explanation
The capitalization rate (cap rate) represents the rate of return an investor expects from an income-producing property. Value = NOI ÷ Cap Rate.
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