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Yield on Cost
Projected annual stabilized net operating income divided by total project cost, expressed as a percentage.
Yield on cost compares a property's expected annual stabilized net operating income with its total project cost. Divide that income by total project cost, then multiply by 100.
In a development model, the cost basis includes acquisition and development spending. State the included costs and stabilization assumptions. Unlike a cap rate based on market value, this measure uses the project cost basis and does not establish a guaranteed return.
Source: Wall Street Prep, Yield on Cost, Formula and Cap Rate Comparison.
Frequently Asked Questions
How does yield on cost differ from a market-value cap rate?
Yield on cost uses total project cost as its denominator. A market-value cap rate uses the property's market value.
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