Question

Check all true statements regarding Cap Rates

		A form of average cap rate is used to valuate commercial properties depending on its industry and/or location
		Cap Rates are used when valuating commercial properties via the cost approach
		As cap rates used to valuate a property decreases, the property value increases holding all else equal
		Cap Rate for One Property = Property Value/NOI
		Valuing a property via Cap Rates is analogous to receiving a perpetuity in the form of a NOI being the payment every year and the Cap Rate being the discount rate

Answer 1

The following two statements are true as to Capitalization (Abbreviated as "Cap") rate :-

3). As cap rates used to valuate a property decreases, the property value increases holding all else equal.

5). Valuing a property via Cap Rates is analogous to receiving a perpetuity in the form of a NOI being the payment every year and the Cap Rate being the discount rate.

Explanation :- The second and fourth statements are false because via income method only, Capitalization rates are applied for valuing the commercial properties (No cost approach) and Cap rate for property is calculated as dividing NOI by Property value and not by dividing the property value by NOI.

The first statement is also false because average cap rate is not applied whereas cap rate for one commercial property is calculated and thereby, each commercial property is valued independently.