We always opt for a conservative approach. In figuring our cap rate, we presume that the market at sale will be worse off than it is at purchase. We first calculate the in-place or “going-in” cap rate – this is based on the purchase price and the in-place net operating income. Next, we calculate the exit cap rate by adding 20 to 50 points (in other words, .2% to .5%) to the in-place cap rate. In so doing, we’re protecting our return projections during a downturn while giving a healthy boost to the true returns we see if the market stays the same or gets better.