What is an underlying component that contributes to an investor's decision as to what capitalization rate is appropriate for a particular property?

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25-08-2022
Business

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What is an underlying component that contributes to an investor's decision as to what capitalization rate is appropriate for a particular property?

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okpalawalter8 okpalawalter8 · Answer 1 · 2022-08-30T14:52:15+02:00

The underlying component that contributes to an investor's decision as to what capitalization rate is appropriate for a particular property is the amount of risk associated with the deal.

This is further explained below.

What is capitalization?

Generally, the supply of capital for an organization, as well as the transformation of existing revenue or assets into capital.

In conclusion, An investor's choice of the optimal capitalization rate for a property is grounded on the level of risk inherent in the transaction.