High Risk investment bad neighborhood

A high risk investment property in a shabby neighborhood would most likely:

  1.  have the appraisal value be higher than the selling price.
  2.  have the same capitalization rate as a low risk investment property
  3.  have a higher capitalization rate than a lower-risk investment property.
  4.  not be a good investment.

The answer is C.  In exchange for the risk, an investor would expect a higher capitalization rate – and thus a higher rate of return on his investment.