Quick YOC Question
When calculating the YOC of a value add deal do you include the whole purchase price in the cost or just the equity you put in?
Thanks
When calculating the YOC of a value add deal do you include the whole purchase price in the cost or just the equity you put in?
Thanks
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Unlevered YOC = Full purchase price
Levered YOC = Equity in
Levered YOC isn’t a real metric. That’s more of a levered COC if anything.
If it’s value add then you should add renovation costs to the purchase price
Thanks. Are other costs included in equity multiple?
Anything in your pro forma that is a negative number after debt needs to be funded out of equity
I think you are thinking of two different metrics.
Stabilized YOC = Forecasted NOI a stabilization / (Purchase price + Capex + Interest reserve + any other associated cost)
That YOC number - market cap rate = your dev spread.
Cash on Cash = Forecasted Net Free Cash Flow (Post debt service and reserves) / Equity invested into the deal.
Thanks for explaining it so clearly.
For Cash on cash when you say equity invested in the deal do you mean Purchase price + Capex + Interest reserve + any other associated cost? Is that the same as what goes into equity when calculating equity multiple?
Question - what is equity (not being an asshole, trying to see where you have a potential gap in your knowledge)
I'm understanding it as the amount of money I put towards the purchase price. (i appreciate the disclaimer)
Yes and no. "Money you put into the deal" yes, but all money isn't equity (something I think you may be misunderstanding given your query above, but correct me if I'm wrong)
When you build your sources and uses you should have an equity row and a debt row(s) (senior and maybe mezz).
Let's assume you buy a building for 100m with a 60% LTV debt facility. 40m is equity and 60m is debt.
Your equity is therefore not 100 (purchase price), it is the 40m of your own money.
Your leveraged net cash flow line (ignore fees and tax for now) is basically your equity line. All negative numbers reflect equity out, ie costs not funded by debt, while all positive numbers are equity proceeds to you after debt service.
So to answer your previous question when you asked what is equity. You are correct that it includes the items you listed (subject to the deal, there may be more items), but don't forget to deduct the debt
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