California Real Estate Practice Exam

A high risk investment property in a rundown neighborhood tends to have:

1. A lower capitalization rate than a lower-risk investment

2. A higher capitalization rate than a lower-risk investment

3. The same capitalization rate as in affluent neighborhoods

4. No capitalization rate

The correct answer is: A higher capitalization rate than a lower-risk investment

Properties in rundown neighborhoods tend to have higher capitalization rates as they pose a higher risk for investors. This is because the property may be more difficult to sell in the future, and there may be higher costs associated with maintaining the property and dealing with potential issues from the neighborhood. The other options, A and C, are incorrect as they suggest that the capitalization rate would be either lower or the same as properties in lower-risk or affluent neighborhoods, respectively. Option D is incorrect as all investment properties have a capitalization rate, which is a measure of the property's potential return on investment.