Understanding Cap Rates In A Down Market

Cap Rate Math Impact: A 2.5% cap rate increase (4% to 6.5%) can cause a 38.5% property value drop, potentially eliminating equity for leveraged investors.

Recession Patterns: Cap rates rise during downturns as investors require higher returns for increased risk, even when interest rates initially fall.

Investor Strategy: Savvy investors avoid assuming further cap rate compression and instead stress-test for expansion to ensure investments can withstand market changes.