Math equations for investment analysis
Cap rate, IRR, cash on cash...

What other equations do you need to analyze an investment opportunity?  Can these three effectively value a property for you?
[{"id": "fe8vx10", "text": "You can look at Yield on Cost vs. Cap Rate to determine the basis point spread for improving a project (whether it\u2019s a ground-up or rehab). \n\nFor example, I may build/improve a project to a 6.0% YoC and the market is trading buildings at a 5.0% Cap Rate. That 1.0% delta is where I get my increase in equity value. \n\nYield on Cost is based on your cost to complete the project (hard + soft + land) whereas Cap Rate is a function of NOI and purchase price. \n\nNOI/Cost = YoC\nNOI/Sale Price = Cap Rate", "replies": [{"id": "fe8yk9f", "text": "Good stuff.  Thanks!", "replies": [], "depth": 2}, {"id": "febsb1q", "text": "Any recommendations for methods or resources to estimate construction costs on projects locally?", "replies": [{"id": "fecss51", "text": "If you have plans, you can reach out to general contractors. They should be more than happy to give you bids.\n\nIf you don\u2019t have plans, you can reach out to local (or regional) project management firms. They should be willing to give you estimates in order to win your business. This would prove their competency.\n\nIf you\u2019re in a major market (As big as NYC down to Nashville or similar sized), there should be plenty of PjM firms and GCs. If you\u2019re in a rural market, I imagine the hard material costs will be the same but the labor costs may vary. I\u2019d try to find the closest major market and reach out to a firm there to get help. \n\nAlso, last piece... don\u2019t underestimate soft costs! Depending on the size of the project , architecture, engineering, city fees, and interest costs can be huge! Typically ~20% project costs on larger commercial projects.", "replies": [{"id": "fectn7y", "text": "Thank you very much for this. I will do that. I appreciate your thorough response.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "feadgak", "text": "There are various ways to derive cap rates (OAR, equity, mortgage cap), yield/discount (OYR, EYR, IRR) rates, recapture rates.  There are also various income methods (Direct cap, DCF, GRM, Modified DCF).", "replies": [], "depth": 1}, {"id": "feck9sn", "text": "An investor never needs to calculate a cap rate.  You use cap rate comps to value the NOI you are buying.  Once you have a market value then you would use other analysis to determine potential returns.", "replies": [], "depth": 1}, {"id": "ffpvcy8", "text": "This should help you correctly understand what cap rates do, value NOI.  [https://www.adventuresincre.com/acre-101-income-approach-value-income-producing-property/](https://www.adventuresincre.com/acre-101-income-approach-value-income-producing-property/)", "replies": [], "depth": 1}]