Yield on Cost (YOC)
Yield on cost is stabilized net operating income divided by total all-in project cost (purchase plus capex) — the metric used to evaluate value-add and development deals.
What it means
YOC = Stabilized NOI ÷ Total Project Cost. It tells the investor what cap rate they are creating through development or value-add, independent of what the market would pay for the finished product.
The spread between YOC and market cap rate is the "development spread" — if you can develop to a 7% YOC in a 5% cap market, you have a 200 bps spread and a profitable deal (before risk). A tight YOC spread is a red flag: the deal has no margin for construction overruns, lease-up delays, or exit cap movement.
Example
A value-add multifamily project buys for $10M, invests $3M in renovations, and stabilizes at $975K NOI. YOC = 975 / 13,000 = 7.5%.