So I’ve read from numerous people that everyone should be able to do back of the envelope analysis especially as an entrepreneur.
Can someone walkthrough an example and how you’re able to tell if a deal is worth doing further diligence?
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Projected NOI / (Purchase Price + Construction Cost) = Yield on Cost
Is Yield on Cost +150bp higher than the cap rate the market would pay for your asset when it's finished?
If so, proceed.
With experience, these inputs will all become trivial. You'll know roughly what a Class A distribution center costs to build PSF. You'll know multifamily operating expenses are around 35% of revenue.
This is the answer. Know your market cap rate and costs associated to get the stabilized yield 200 bps higher.
This is like asking someone how they do mental math. Everyone has their own way.
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