Question about looking at Cap Rates

[Chris Jones]

Hello Everyone, there's this thing with cap rates (well checking for a properties true value) that I just can't seem to wrap my brain around and wanted to hear what some of you other investors thought about it.

OK. everyone knows that the properties value is based off its income (NOI) which I got that, and everyone knows you arrive at the cap rate by dividing NOI by the Asking Price which you get the cap rate at which the seller is selling his/her property at.

so my question is, isn't it a flawed pratice to analyze all deals off a 10% return/cap calculation? because basically to me there is no set true value even when both you and seller agree on the income the property produces.

Example....a property generating 100K and a asking price of 1.4M equals a cap rate of 7. But if I were to come along and analyze this property off of a 10% return/cap this property would look like its 400K overpriced (so whose right).

I know behind all this its based on the risk factor (lower return less risk, higher return more risk), so with that being said what particular risk factors that make you investors feel comfortable analyzing the property/deals off of a 10% return/cap instead of what the seller is asking for?

the point behind this whole thread is that I feel alot of investors are missing out on some great deals because they're being taught how to analyze them correctly, so they can't get a true sense of a deal or trash.