Comparing yield requires more than dividing NOI by price. A disciplined analysis separates operational yield from financing structure and terminal assumptions.
The cleanest deal is usually the one with the fewest hidden decisions between interest and execution.
Cash flow first
Focus on the cash that survives repairs, vacancy, and operating friction. High cap rate assets can still underperform if they need constant spending.
Stress the exit
A good return today can become a poor return if refinancing is expensive or the resale market softens. Model a few down-market exits.
Benchmark the local premium
Some neighborhoods command a premium that is not visible in the immediate cap rate. That premium has to be justified by future demand.
Key takeaways
- Headline yield can hide weak cash flow.
- Vacancy and capex belong in the base case.
- Exit assumptions should be tested, not assumed.
- Compare assets by risk-adjusted return, not just ratio.
Reader comments
The section on exit assumptions is the part most buyers skip. That is where the bad surprises live.
The risk checklist is the right order. People usually start with price and end up correcting for everything else later.