What is a cap rate? It's a building's yearly income after expenses, before any loan, divided by its price. When buyers want a higher cap rate, the same income supports a lower price, even if nothing about the building has changed. That matters to investors in every real estate deal.
What the film says
In real estate, buildings can lose millions with every tenant still paying. The reason is the cap rate. It sets what a year of income is worth. Say a building earns one million dollars a year, after expenses, before any loan. A buyer pays twenty-five million. One million, divided by twenty-five million, is four percent. That's the cap rate. Now say interest rates climb, and buyers want five percent. That million now holds up only twenty million. Same building. Same tenants. Same rent. Five million dollars gone. It works the other way too. Raise the rent by a hundred thousand a year, and at five percent, the price rises two million. So why do investors care? A low cap rate usually means less risk, and a higher price for every dollar of income. Income is the weight. The cap rate decides what it can hold up. IN REAL ESTATE,
A simple example with round numbers, not advice. Terms vary by fund.
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