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Yield on Cost Calculator
Yield on cost (YoC) is the development industry's primary return metric: stabilized NOI divided by total project cost (land + hard cost + soft cost + carry). The spread between YoC and market exit cap rate captures the value-creation premium developers earn for taking entitlement, construction, and lease-up risk. This calculator quantifies YoC, spread, and projected exit profit.
Going-in cap on stabilized comps
Yield on cost
6.36%
Developer spread (YoC − cap)
0.86%
150-200 bps target for development
Stabilized exit value
$6,363,636
Profit at exit
$863,636
Profit margin on cost
15.70%
How the math works
Yield on cost (YoC) = stabilized NOI ÷ total project cost. Developers target 150-200 bps over market cap rates so that the development spread compensates for execution risk. A property delivering 7% YoC against a 5.5% market cap creates 150 bps of value uplift.
Negative or thin spreads (under 100 bps) signal you're paying retail to build — better to acquire stabilized assets at lower risk.
How to Use
- Enter projected stabilized NOI once the asset is fully leased.
- Enter total project cost — purchase plus all capex, soft costs, and carry.
- Enter the market exit cap rate for stabilized comparable assets.
- Review YoC, developer spread, exit value, and profit margin.
Frequently Asked Questions
What spread is acceptable?
Most institutional developers target 150-200 bps spread over market cap rates. Anything under 100 bps and you're not adequately compensated for development risk.
Should I include developer fee in cost?
Yes if it's paid to a third party; no if it's accruing to your own balance sheet (you'd be double-counting your return).
How is YoC different from cap rate?
Cap rate uses purchase price as the denominator; YoC uses total project cost (price + improvements). YoC is the pro forma return after value creation.
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