Favorable Financing

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Favorable Financing has a similar effect on the capitalization rate as does risk.  If financing is favorable, the investor will tend to pay more for the property.  A higher price will cause the capitalization rate to be lower than typical.

 

If financing is unfavorable, the investor will tend to pay less for the property.  A lower price will cause the capitalization to be higher than typical.

 

When an opinion of a market value is not in terms of cash or based on financing terms equivalent to cash, summarize the terms of such financing and explain their contributions to or negative influence on value.

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