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Managing Commercial Assets in Changing Market Conditions
The value of commercial assets is influenced by factors like interest rates and cap rates. As interest rates decrease, more people want to buy assets, driving down cap rates. The price of assets increases as cap rates decrease, allowing owners to make more profit when selling. However, if interest rates rise, the demand for assets decreases, causing prices to fall and cap rates to increase. Therefore, the key to buying commercial assets is to be able to hold them long enough for cap rates to decrease again, necessitating a larger initial investment to mitigate risk. Additionally, strategies like putting more money down or improving the deal structure can help in navigating the fluctuations in the market.