The going-in capitalization rate can vary significantly by property quality.Which of the following classes of properties within a particular property type would be expected to have the highest cap rates?

Question

Quizplus · Accepted Answer

Class C properties typically have the lowest quality and are located in less desirable neighborhoods. Investors may demand a higher rate of return to compensate for the higher risks associated with these properties, leading to higher cap rates. Class A properties, on the other hand, are of higher quality and are located in more desirable locations, reducing the risk for investors and leading to lower cap rates. Class B properties generally fall in between Class A and Class C in terms of quality and location, so their cap rates would be between those of Class A and Class C properties. Therefore, Class C properties would be expected to have the highest cap rates.

The Going-In Capitalization Rate Can Vary Significantly by Property Quality