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Master Exam #3
Question 137 of 150
Question: The capitalization rate to be used in the income approach to the appraisal of real property provides for a return on, and a return of, the investment in the improvements. A return of the investment is provided for by means of:
A: Return on the land;
B: Monthly savings;
C: Depreciation methods;
D: Principal payments.
Correct Answer is : C
In figuring the capitalization rate by the summation method, a factor for the depreciation of the property is figured into the return given the investor. This allows for a return of the investment. Return on the land is not relevant because land does not depreciate. Monthly savings, or annual savings in a sinking fund may be the specific way in which the investor puts the money aside. Principal payments have to do with a loan, not appraising.