The Denominator Effect in Real Estate

Do you want to destroy your wealth? I can teach you how. Do you want to create more wealth for yourself? I can teach you to do that as well. 

Do you know about the denominator effect? 

In finance and investing, the “denominator effect” occurs when the value of one portion of a portfolio decreases drastically and pulls down the overall value of the portfolio. As a result, any segments of the portfolio which did not decrease in value now represent a large percent of the overall pie.

While this is true and somewhat obvious, there is another denominator effect at play in real estate. An insidious destroyer of investor dreams and wealth. 

If you acquire and operate a great asset and this denominator goes in your direction, you will celebrate with a double win. But even if you buy and operate your asset well, this denominator effect can destroy you and liquidate your equity.

What is this denominator effect? I’m talking about cap rate decompression. 

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