Yield on cost calculator.

Yield on cost is the developer’s and value-add investor’s yardstick: stabilized NOI over everything you spend to get there. Compared to the market cap rate, the gap — the “development spread” — is the reward for the risk.

Stabilized NOI (annual)

Total project cost (all-in)

Market (exit) cap rate

Yield on cost

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Yield on cost

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Market cap rate

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Development spread

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Yield on cost = stabilized NOI ÷ total project cost; the development spread is yield on cost minus the market cap rate you’d sell at. A wider spread means more created value per dollar of risk. Many developers want at least a 150–200 basis-point spread to justify taking on the execution risk.

Measuring created value

Yield on cost is the developer’s and value-add investor’s yardstick: stabilized NOI divided by everything you spend to get there — purchase, hard costs, soft costs, and carry. Compared to the market cap rate you would sell at, the gap is the development spread, and it is the reward for taking on construction and lease-up risk.

Example. Spend $2,900,000 all-in and stabilize at $210,000 of NOI, and your yield on cost is about 7.2%. If the market cap rate for the finished asset is 6.5%, your development spread is only 70 basis points — thin. Trim costs or lift rents until yield on cost clears roughly 8% and the spread widens into territory that actually pays for the risk.

Frequently asked questions

What is yield on cost?

Yield on cost (also called return on cost or development yield) is the stabilized net operating income divided by the total cost to acquire and improve the property — purchase, hard costs, soft costs, and carry. It’s the going-in yield you create, not the one you buy.

Yield on cost vs cap rate?

Cap rate is NOI over the price you pay or sell at; yield on cost is NOI over everything you spend to build or reposition. If yield on cost exceeds the market cap rate, you’ve created value — the property is worth more than it cost to make.

What development spread should I look for?

The spread is yield on cost minus market cap rate. Many developers and value-add investors target at least 150–200 basis points of spread to compensate for construction, lease-up, and market risk. A thin spread means little margin for error.

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Estimates are for planning only and use simplified assumptions — not tax, legal, or investment advice. Verify with your lender, CPA, and a full broker analysis before acting.