If Investment Property A has a capitalization rate of 12% and Investment Property B has 19%, what is true about the two investments?

When comparing two investment properties based on their capitalization rates, a lower capitalization rate generally indicates a higher property value and lower perceived risk, while a higher capitalization rate suggests a lower property value and potentially higher risk. In this scenario, Investment Property A has a capitalization rate of 12%, whereas Investment Property B has a capitalization rate of 19%.

The capitalization rate is calculated by dividing the net operating income (NOI) of the property by its market value. A 12% cap rate means that Investment Property A may be seen as a safer investment since it signifies a greater value relative to its income. Investors may view this lower cap rate as indicative of a more stable and lower-risk investment compared to Property B's higher cap rate of 19%, which could imply higher volatility or potential management challenges.

Therefore, it is accurate to say that Investment Property A involves less risk than Investment Property B, aligning with the key understanding that lower cap rates typically represent less risk in real estate investments.