I'm doing some basic reading about real estate, and I've come across two principles that articles tend to reiterate, but I don't understand why these principles are necessarily the case:
"A larger CAP rate means a more risky investment." I don't understand why this is the case. If a CAP rate is
Net Operating Income / Price of Real Estate, then you could have a market where the price of the asset is very high, possibly because of land costs (i.e. California), which seems to be a factor that would grow or shrink independently of risk. Why is a higher CAP rate seen as directly correlated with risk?
"Rising interest rates mean higher CAP rates." I've seen a few articles assert that there is a correlation here, and suggest that there is a corresponding, subsequent downward effect on housing prices, but no mathematical explanation for why rising interest rates would logically translate into higher CAP rates. Why might this be the case?