How do Cap Rates work? Why & how they change & why every investor needs to understand them, especially 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.

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