Let's say you are purchasing an asset at an 8 cap and that you will hold the asset for 5 years and you generate 5% YoY NOI growth. Where would you want your exit cap to be? We all know how IRRs are sensitive to cap rates since they drive your purchase and exit prices. I know that at times people want to exit at the same cap rate, others look to exit at 75 to 100bps lower and others are fine exiting at a higher cap than they bought at. Since a lower cap rate drives the value of your asset up, wouldn't you want to exit at a lower cap?
If you're experiencing NOI growth, the value of your property goes up since it generates more income, does it mean that your cap rate goes down?
As an investor, what do you want to do to the cap rate when you purchase a property?
Question for experienced investors, what does an 8% cap rate tell you? Do you see it as 8% gross unleverred return prior to tax and interest expense? In that case wouldn't you want your cap rates to go up?
Sorry my thoughts are all over the place but I am having a hard time fully understanding the concept of cap rates.