PLUMHow to Model Unlevered Yield for Private Exits
Cap rates conflate financing with fundamentals. Unlevered yield isolates the asset itself — which is exactly what you want when comparing off-market opportunities.
Unlevered yield vs. cap rate
A capitalization rate (cap rate) is NOI divided by purchase price. Unlevered yield is effectively the same ratio, but stated as the pure return on the asset before any debt is applied:
Unlevered Yield = NOI ÷ Purchase Price
The distinction is discipline, not formula: “cap rate” is often quoted against asking price or in-place assumptions, while “unlevered yield” is quoted against the actual acquisition basis. Using the same denominator keeps every deal comparable.
Why it matters off-market
- No public comps. Off-market assets have no listing history, so a clean yield is the only honest cross-deal yardstick.
- Seller financing blurs leverage. Comparing levered returns rewards the most aggressive financing, not the best asset. Unlevered yield removes that distortion.
- It is the buyer’s true cost of capital. Before adding debt, the unlevered yield tells you whether the property earns enough to justify the price.
A quick worked example
Consider a building with NOI of $180,000 offered at $2,400,000. Unlevered yield is:
$180,000 ÷ $2,400,000 = 7.5%
If your debt costs 6.0% and you can lever 65%, positive spread exists — but only after you confirm the NOI is stabilized and defensible. Model the unlevered yield first; add leverage second.