Which factor would likely affect investment value but not market value?

Which factor would likely affect investment value but not market value?

• A. Location.
• B. Current market rent.
• C. Individual investor's required return.
• D. Property tax assessment.

Answer: (C)

The main idea is the difference between investment value and market value. Market value is what a property would typically command in an open market, based on what buyers in general expect and are willing to pay. Investment value is the value to a specific investor, given that investor’s own required return, tax situation, financing, and risk preferences. The factor that would affect investment value but not market value is the individual investor’s required return. If you change your own required return, the discount rate you apply to the property’s expected cash flows changes, which directly alters how much you personally value the property. A higher required return lowers your investment value because the future cash flows are discounted more steeply. But this personal hurdle rate doesn’t automatically change the market price—market value reflects the collective expectations of buyers in the market, not a single investor’s specific return requirement. Other factors tend to influence market value as well. Location is a fundamental driver of what buyers are willing to pay in the market. Current market rent affects the income stream the market capitalizes, impacting value through NOI and cap rates. Property tax assessment changes alter ongoing costs and taxes, which feed into the operating performance that buyers in the market consider when determining price.

The main idea is the difference between investment value and market value. Market value is what a property would typically command in an open market, based on what buyers in general expect and are willing to pay. Investment value is the value to a specific investor, given that investor’s own required return, tax situation, financing, and risk preferences.

The factor that would affect investment value but not market value is the individual investor’s required return. If you change your own required return, the discount rate you apply to the property’s expected cash flows changes, which directly alters how much you personally value the property. A higher required return lowers your investment value because the future cash flows are discounted more steeply. But this personal hurdle rate doesn’t automatically change the market price—market value reflects the collective expectations of buyers in the market, not a single investor’s specific return requirement.

Other factors tend to influence market value as well. Location is a fundamental driver of what buyers are willing to pay in the market. Current market rent affects the income stream the market capitalizes, impacting value through NOI and cap rates. Property tax assessment changes alter ongoing costs and taxes, which feed into the operating performance that buyers in the market consider when determining price.