Question

40) The capitizaltion rate is a) a method to convert future income to present value b)...

40) The capitizaltion rate is

a) a method to convert future income to present value

b) usually figured at 12 percent for investment properties

c) used to determine the return on investment

d) the ratio the appraised value of the property bears in comparison to other non-competing properties

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Answer #1

The correct answer is option c.

The capitalization rate is a metric that is mostly used to evaluate the real estate properties. It is a type of profitability metric that is used to determine the return on a real estate investment property. The formula for the capitalization rate is Net income/ Current market value of the asset

It is extremely useful for quick comparision of relative value in similar real estate investments but it should not be used as a sole measure to know the strength of a real estate investment

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