JACKSONVILLE, FL – When discussing multifamily real estate investments, industry professionals often focus on metrics like ‘cap rate’, ‘Annualized Average Return (AAR)’, and ‘Internal Rate of Return (IRR)’. However, ‘Yield-on-Cost (YOC)’ metrics, both untrended and trended, can provide deeper insights into the performance of real estate assets, especially in challenging capital market conditions.
Yield-on-Cost reflects the net operating income relative to the total acquisition cost of a property. This includes all expenditures on renovation, redevelopment, and legal fees. Unlike cap rates, which focus on the purchase price and NOI, Yield-on-Cost offers a more comprehensive view. It helps investors understand the financial landscape thoroughly.
With rising interest rates and economic uncertainty, investors are reconsidering traditional avenues like treasury bonds. Yield-on-Cost allows for direct comparison between these safe investments and multifamily real estate projects. It highlights the potential for higher yields through property improvement and management, even in initially adverse markets.
Yield-on-Cost Case Study: Nuvo Capital Partners
Nuvo Capital Partners recently highlighted the importance of Yield-on-Cost by underwriting a Class B property in Florida. Despite the property’s low initial investment and modest going-in cap rates, a value-creation strategy using bridge financing and targeted renovations showcased its potential. This strategy used both trended and untrended Yield-on-Cost calculations for accurate forecasting and profitable decisions.
The Power of Yield-on-Cost Metrics
Untrended Yield-on-Cost provides a raw, straightforward view of an investment’s performance after initial improvements. It highlights whether an investment is strong or vulnerable to cost inflation. These metrics are invaluable for navigating the complex real estate investment landscape. They offer clarity and help investors achieve their long-term financial goals.
To understand how Yield-on-Cost can change your investment approach in multifamily real estate read the full article here.
About Nuvo Capital Partners
Nuvo Capital Partners is a niche market-focused multifamily private equity firm operating throughout the Southeastern United States. As a dedicated sponsor (General Partner), we specialize in institutional quality real estate investments within these regions. Our team, with a combined 25+ years of experience, has facilitated over $700M in transactions (10,000+ units). Delivering a transparent investment process, we provide our investors with access to high-quality real estate opportunities, while also ensuring integrity throughout. Our commitment extends to providing monthly, quarterly, and yearly in-depth reporting for our valued investors. To learn more, visit nuvocapitalpartners.com.
If you are interested in learning more about Nuvo Capital Partners and the investment opportunities we are currently exploring, please feel free to contact us here.
