If the value of a commercial property is set at $400,000 using a net income of $36,000 and a 9% capitalization rate, what would be its value if a 12% capitalization rate is used?

To determine the value of a commercial property based on its net income and capitalization rate, you use the formula:

Value = Net Income / Capitalization Rate.

In this case, the net income is $36,000.

If we originally use a capitalization rate of 9%, the value is calculated as follows:

Value = $36,000 / 0.09 = $400,000.

Now, to find the property value using a capitalization rate of 12%, we can apply the same formula:

Value = $36,000 / 0.12.

This calculation yields:

Value = $300,000.

Therefore, when the capitalization rate increases to 12%, the value of the property decreases to $300,000. This result reflects how increases in the capitalization rate typically indicate a higher risk or lower demand for the property, thereby reducing its value.