ESCP Real Estate (RE) Consulting Practice Exam

In real estate investment, a higher yield generally indicates more risk and a lower price for the property. Yield is a measure of the income generated by an investment relative to its cost. When a property has a higher yield, it usually suggests that investors are demanding a higher return on their investment due to perceived risks associated with the property.

This increased risk can stem from various factors, such as a declining neighborhood, potential tenant instability, or higher maintenance costs. Because of these uncertainties, the property price tends to be lower as sellers must incentivize buyers to take on the additional risks of investing in that real estate asset.

Thus, the relationship between yield and risk is a critical concept in real estate investment analysis, making the assertion that a higher yield indicates more risk and a lower price accurate.