We all know the common metrics to calculate for real estate financial modeling.

Yield on cost, cap rate, break even occupancy, etc.

But what is a ‘good’ yield on cost? What do most investors consider an acceptable break even occupancy rate?

Here are some general guidelines for what most investors would consider acceptable numbers:

Yield on Cost

This metric helps answer the question if the return on capital invested in the project is sufficient to overcome a project’s initial cost.

// What's a good Y.O.C.? Generally speaking, most investors would agree anything above 6% (stabilized) is acceptable.

Breakeven Occupancy

B.E.O. shows how much physical vacancy the property can handle to break even, in a worst case scenario. So if the property went down to X% occupancy, the sponsor can still pay all of the expenses and pay the mortgage.

Most investors would agree anything between 60% and 80% is acceptable.

Development Spread

This shows exactly how much value is being added in the deal, compared to buying a stabilized asset. This is helpful on-value add and development deals.

Most investors would agree anything between 1.5% and 2% is a ‘good’ development spread.

IRR

IRR is the annualized, time-weighted return of your investment. Generally speaking, here are some guidelines for what most investors would consider an acceptable IRR:

• Acquisition of stabilized asset – 10% IRR

• Acquisition & repositioning of asset – 14% IRR

• Development in established area – 20% IRR

• Development in rural area – 30% IRR

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📈 Chart of The Week

More than 66,000 Build-to-Rent Units Underway in Sun Belt

While the U.S. overall has seen moderate occupancy decline in the past five years, some small apartment markets are logging significantly worse performances.

As of early November, some 113,308 BTR units were under construction (including at properties in lease-up where construction is ongoing), according to RealPage Market Analytics.

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