Yield on Cost: RE Analysis
YOC RE analysis: used for feasibility, comparison, underwriting, and exit strategy. Institutional: 150-200 bps above cap minimum. Development: land + construction + soft + overhead; target 150-250 bps above cap (higher risk). Value-add: acquisition + renovation; target 100-150 bps above cap (lower risk). Both create value when YOC > cap. Limitations: projections may differ, no time value, no risk differentiation, no financing structure, and market changes. Use with IRR, NPV, and cash-on-cash.
Investor Use
- Feasibility, comparison
- Underwriting, exit strategy
- 150-200 bps minimum
Development vs. Value-Add
- Development: 150-250 bps
- Value-add: 100-150 bps
- Value when YOC > cap
Limitations
- Projections, timing
- No risk/financing
- Use with IRR, NPV
Related Terms
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Reviewed by the attorneys at Barnes Walker, Goethe, Shea & Robinson, PLLC