Yield On Cost
Yield on cost is stabilized NOI divided by total project cost. It tells you whether your basis creates value versus buying a stabilized asset.
Why it matters
yield on cost changes what a disciplined buyer can pay, how much debt the asset can safely carry, and whether the return is coming from operations or fragile assumptions.
Formula
Yield on cost = stabilized NOI / total project cost.Worked example
In underwriting, tag yield on cost beside the exact source input and rerun the model when that input changes. The point is not a pretty metric; it is a better buy, hold, refinance, or walk decision.
How investors read it
The investor question is simple: does stabilized NOI on your all-in cost beat the market cap rate by enough to justify the work, time, and risk? If not, you bought a job, not value creation.
Common mistakes
- · Treating the metric as a verdict instead of a screen.
- · Using broker-package assumptions without checking the source documents.
- · Ignoring taxes, capex, vacancy, financing terms, and timing.
Use current local data and source documents. Realist should show assumptions and date-stamp market inputs because stale inputs create fake precision.