Yield on Cost: The Real Estate Metric of Wall Street

With apartment syndication from retail investors, often even with massive $40+ million dollar deals, you'll rarely see the term Yield on Cost.

So where do you see it?

Wall Street players and institutional investors often use this. In particular, their language often involves the word "yield."

Formula:

Pro forma NOI after rehab is completed and rents are stabilized. This could be around year 2 or 3.

Divided by

((Purchase price) + (Capital expenditure budget))

= Yield on Cost

Why it's useful?

The most similar calculation to this is a cap rate. However, cap rate only accounts for the purchase price. Yield on cost accounts for the purchase price along with the rehab budget and the projected increase to NOI.