Episode 311
Understanding Cap Rates In A Down Market
The Canadian Real Estate Investor · Daniel Foch & Nick Hill
June 27, 20251h 2m
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Show Notes
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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