Cap rate is the net cashflow divided by the purchase price. In other words: the current cap rate is a function of the price you paid (ie : appreciation up unti

Cap rate is the net cashflow divided by the purchase price. In other words: the current cap rate is a function of the price you paid (ie : appreciation up until now) Another investor will not buy for a higher price unless the rents also increased (ie: cap rate is in a certain acceptable range) The statement "...property doubles in value but I don't increase my rents...." Is misleading since presumably no sane investor would pay double price for the same income stream. If the cap rate is 5% for a 1 million dollar property then it earns 50k per year. The property price that other investors are going to pay will be a function of a cap rate they are OK with ( which bakes in the price and earnings ratio). 2.5% cap rate means 2 million dollars still earning 50k year. No thank you Additionally, the equity in an investment is not wealth... yet. It has to be sold to get money that can be used to put food on the table.