What characteristic would a high-risk investment property in a rundown neighborhood likely have?

A high-risk investment property in a rundown neighborhood is characterized by a higher capitalization rate. This is because the capitalization rate, which reflects the expected return on investment based on income generated from the property relative to its value, tends to increase in areas perceived as higher risk. Investors demand a greater return for assuming the risks associated with properties in less desirable neighborhoods. Factors contributing to this risk include potential issues such as lower property demand, higher vacancy rates, crime, and the need for significant maintenance or renovations.

In rundown neighborhoods, the potential for rental income may be inconsistent, and the costs related to both maintenance and vacancy can be higher than in more stable areas. Thus, a higher capitalization rate serves to compensate investors for these risks by indicating an expectation of higher returns relative to the property's price. A lower capitalization rate, standard market value, or lower maintenance costs typically correspond to properties in more stable or desirable areas, making them less applicable to high-risk investments in deteriorating neighborhoods.