What is UYOC (Unlevered Yield on Cost) in real estate?

What Does UYOC Mean and How is it Calculated?

UYOC stands for "Unlevered Yield on Cost", a financial metric used to evaluate the profitability of a real estate investment without considering the impact of debt financing. It is calculated by dividing the property's annual net operating income (NOI) by the total cost of the investment (including the purchase price and all associated costs to acquire and prepare the property for rental). This metric provides investors with an understanding of the return on investment from the property's operations alone, without the influence of leverage (debt).

Here's the formula to calculate Unlevered Yield on Cost:

Unlevered Yield on Cost = NOI / Total Investment Cost
  • Net Operating Income (NOI): This is the income from property operations after operating expenses have been deducted from the total income generated by the property. Operating expenses include costs such as property management fees, maintenance, insurance, and property taxes, but exclude financing costs and capital expenditures.
  • Total Investment Cost: This includes the acquisition cost of the property (purchase price) plus all additional costs required to bring the property to a rentable state, such as renovations, legal fees, closing costs, and other transactional expenses.

Unlevered Yield on Cost helps investors understand the inherent profitability of a real estate asset without the risk and return modifications introduced by borrowing. It is particularly useful for comparing the performance of different investments on a level playing field, as it isolates the property's income-generating ability from the effects of financing structure.

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