October 2011
Beginner
442 pages
11h 49m
English
If everything else remains constant and if the general market cap rates increase, which means essentially that investors demand a higher yield, what happens to value? There is an inverse relationship between Cap Rate and FMV. As Cap Rates increase, FMV decreases. The logic is simple. If you demand a higher return, yet all other factors, that is, NOI, have not changed, you must receive a reduced price to achieve the higher yield. In our example, if the Cap Rate increases to 10 percent, the FMV is reduced from $10,200,000 to $9,180,000.
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