A high risk investment property in a shabby neighborhood would most likely:
- have the appraisal value be higher than the selling price.
- have the same capitalization rate as a low risk investment property
- have a higher capitalization rate than a lower-risk investment property.
- 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.