Question

Based on your understanding of the relation between the construction of a capitalization rate and a net income multiplier, which of the following statements best describes what we would expect to observe when comparing first-tier (Class A) properties to other property quality classifications within an individual property type? A. low capitalization rates and low net income multipliers B. low capitalization rates and high net income multipliers C. high capitalization rates and low net income multipliers D. high capitalization rates and high net income multipliers

Answer 1

Based on the benefits of first-tier properties to other property qualifications, we would observe B. low capitalization rates and high net income multipliers

First-tier properties:

• Have low risks
• Have a better chance of providing more income

A property with a higher capitalization rate is one that is more risky so a first-tier property will have low capitalization rates compared to other types of property.

They will also have high net income multipliers as they stand a better chance of making more income for a person.

In conclusion, first-tier properties would have a lower capitalization rate and higher net income multipliers.

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