Terminal cap rate (exit cap rate)

[Matt B.]

hi everybody, was wondering how people here determine their exit cap-rate. Is it just off of comparables (even then, finding a future comparable isn't really possible when modeling the properties performance for the next 5-10+ years). I've read it can be done off of historic cap-rates, but a neighborhood can develop a lot in a 5-10 year time-span, so using historic rates doesn't sound particularly accurate. 

I understand the math for going-in caps and exit caps, that's easy enough. Hypothetically speaking though, couldn't a person just buy a property at $1,000,000 with a 10% cap rate ($100,000 NOI) and 5 years later sell it at a 5% cap, and lets assume the the last years NOI is $125,000 making the sales price $2,500,000.

My point being, although the NOI did make a 25% increase in 5-years time, but does that really support the additional $1,000,000+ at the sale? that's a 150% increase!  If it remained a 10% cap with an NOI of $125,000, then it'd  only be selling for $1,250,000. 

So, there must be some other determiners or market influences for exit cap rates, otherwise people would just buy a property at a 10 Cap and flip at a 4 Cap, and defend it by saying "the numbers make sense", right?