Cash-on-cash return is annual cash flow after debt service divided by the equity you put in. IRR is the discount rate at which your equity cash flows, including the net sale proceeds, have a net present value of zero. Equity multiple is total distributions divided by equity.
Around them sit going-in cap rate (current NOI ÷ price), yield on cost (stabilized NOI ÷ total project cost), unlevered IRR and DSCR. In the hypothetical deal below, the same facility shows a 3.3% year-1 cash-on-cash, a 21.7% levered IRR and an 8.3% yield on cost, all at once.
The formulas
These are the definitions the Deal Analyzer uses. Other models may define them slightly differently, so when you compare a broker's or a sponsor's numbers with yours, check the definition first.
Going-in cap rate
What the facility earns on the price today, before debt and before your business plan.
Yield on cost
Total project cost is the purchase price plus acquisition costs, loan fees and any expansion capital. Yield on cost is the going-in cap rate of the business plan you are paying for.
Cash-on-cash return
Equity is total project cost minus total loan proceeds. Calculate it for year 1, using the year's projected NOI and debt service, and at stabilization, using stabilized NOI and the full amortizing payment.
Levered IRR
Equity goes in at time zero, annual cash flow after debt service comes out each year, and in the final year you add net sale proceeds: sale price minus selling costs minus the loan balance paid off.
Unlevered IRR
The same calculation as if you paid all cash. It measures the property, not the financing.
Equity multiple
Total distributions are every annual cash flow plus net sale proceeds.
DSCR
Debt service coverage ratio. Useful at three points: current NOI over year-1 debt service, year-1 NOI over year-1 debt service, and stabilized NOI over the amortizing annual payment. It is a lender's metric, but it is also your margin of safety.
One deal, every metric
Suppose you buy a hypothetical self-storage facility with room to push occupancy and rents. All figures are invented for illustration.
| Line | Amount |
|---|---|
| Purchase price | $4,000,000 |
| Closing and acquisition costs | $80,000 |
| Loan fee (1% of loan) | $26,000 |
| Total project cost | $4,106,000 |
| Loan: 65% of price, 6.75%, 25-year amortization | $2,600,000 |
| Equity | $1,506,000 |
The loan payment is $17,963.70 a month, or $215,564 a year. Current NOI is $240,000. The plan reaches a stabilized NOI of $340,000 in year 3, then grows 3% a year. You sell after five years at a 6.5% exit cap on year-6 NOI, with 2% selling costs. NOI after year 3 is rounded to the nearest $100.
| Year | NOI | Debt service | Cash flow | Cash-on-cash | DSCR |
|---|---|---|---|---|---|
| 1 | $265,000 | $215,564 | $49,436 | 3.3% | 1.23x |
| 2 | $315,000 | $215,564 | $99,436 | 6.6% | 1.46x |
| 3 | $340,000 | $215,564 | $124,436 | 8.3% | 1.58x |
| 4 | $350,200 | $215,564 | $134,636 | 8.9% | 1.62x |
| 5 | $360,700 | $215,564 | $145,136 | 9.6% | 1.67x |
| Total | $1,630,900 | $1,077,822 | $553,078 |
| Line | Amount |
|---|---|
| Year-6 NOI | $371,500 |
| Sale price ($371,500 ÷ 6.5%) | $5,715,385 |
| Less selling costs (2%) | −$114,308 |
| Less loan balance after 60 payments | −$2,362,513 |
| Net sale proceeds | $3,238,564 |
The sale is priced on the next year's NOI, because that is the income a buyer is paying for. That is also how the Deal Analyzer values the exit.
Computing each return
| Metric | Calculation | Result |
|---|---|---|
| Going-in cap rate | $240,000 ÷ $4,000,000 | 6.00% |
| Yield on cost | $340,000 ÷ $4,106,000 | 8.28% |
| Year-1 cash-on-cash | $49,436 ÷ $1,506,000 | 3.28% |
| Stabilized cash-on-cash | ($340,000 − $215,564) ÷ $1,506,000 | 8.26% |
| Current DSCR | $240,000 ÷ $215,564 | 1.11x |
| Year-1 DSCR | $265,000 ÷ $215,564 | 1.23x |
| Stabilized DSCR | $340,000 ÷ $215,564 | 1.58x |
| Levered IRR | Equity flows below | 21.69% |
| Unlevered IRR | Property flows below | 13.38% |
| Equity multiple | $3,791,642 ÷ $1,506,000 | 2.52x |
The two IRRs use these cash flows:
| Year | Levered (equity) | Unlevered (property) |
|---|---|---|
| 0 | −$1,506,000 | −$4,106,000 |
| 1 | $49,436 | $265,000 |
| 2 | $99,436 | $315,000 |
| 3 | $124,436 | $340,000 |
| 4 | $134,636 | $350,200 |
| 5 | $3,383,699 | $5,961,777 |
| IRR | 21.69% | 13.38% |
Year 5 levered is the $145,136 cash flow plus $3,238,564 of net sale proceeds. Year 5 unlevered is $360,700 of NOI plus the $5,715,385 sale price less $114,308 of selling costs. Total distributions to equity are $3,791,642, for a profit of $2,285,642 on $1,506,000 invested.
Checking the IRR
IRR has no closed-form solution; software finds it by trial. The answer is easy to check, though: discount each cash flow at the IRR and the present values should sum to zero. We solved the levered IRR with both Newton's method and bisection in a short script, and both returned 21.69%.
| Year | Equity cash flow | (1 + IRR)^t | Present value |
|---|---|---|---|
| 0 | −$1,506,000 | 1.0000 | −$1,506,000 |
| 1 | $49,436 | 1.2169 | $40,623 |
| 2 | $99,436 | 1.4809 | $67,144 |
| 3 | $124,436 | 1.8022 | $69,046 |
| 4 | $134,636 | 2.1932 | $61,388 |
| 5 | $3,383,699 | 2.6690 | $1,267,799 |
| Net present value | $0 |
Notice where the value sits: $1,267,799 of the $1,506,000 in present value comes from year 5. For the same reason, net sale proceeds are $3,238,564 of the $3,791,642 in total distributions, about 85%. This IRR is mostly a bet on the sale.
What drives each metric
- Going-in cap rate: current NOI and price only. It ignores the business plan, the debt and the exit.
- Yield on cost: how much NOI the plan adds and how much it costs to get there. Closing costs and loan fees lower it, which is why it is 8.28% here and not the 8.50% you get from $340,000 ÷ $4,000,000.
- Cash-on-cash: NOI, the loan payment and the amount of equity. The loan constant (annual payment ÷ loan amount) is the hurdle: here it is $215,564 ÷ $2,600,000 = 8.29%. When NOI as a yield on cost is below the loan constant, debt pulls cash-on-cash below the property's yield. At stabilization, this deal's 8.28% yield on cost is almost exactly equal to its 8.29% loan constant, so the stabilized cash-on-cash (8.26%) is almost exactly the property yield. The loan adds nothing to annual cash yield; it adds to IRR only through the sale.
- Levered IRR: timing and size of every cash flow, the exit cap, the hold period, leverage, and principal paid down. Faster lease-up and a lower exit cap raise it.
- Unlevered IRR: the property's cash flows and exit alone.
- Equity multiple: total dollars back, with no regard to when. A longer hold usually raises the multiple and can lower the IRR.
- DSCR: NOI against the payment. Interest rate, amortization and interest-only periods move it as much as NOI does. Size and test the loan in the DSCR and loan calculator.
When the metrics disagree
The base case already shows the classic conflict: a 3.3% year-1 cash-on-cash and a 1.11x current DSCR next to a 21.7% levered IRR. Nothing is wrong with the math. During lease-up the facility is still earning close to its purchase NOI while you pay the full debt service, and the value you are creating only turns into cash at sale.
Change one input at a time and the metrics move differently:
| Scenario | Year-1 CoC | Stab. CoC | Levered IRR | Unlev. IRR | Multiple |
|---|---|---|---|---|---|
| Base: stabilized in year 3 | 3.3% | 8.3% | 21.7% | 13.4% | 2.52x |
| Slower lease-up: stabilized in year 5 | 2.6% | 8.3% | 18.3% | 11.8% | 2.22x |
| No value-add: NOI grows 3% a year from $240,000 | 1.6% | 1.6% | 6.4% | 6.6% | 1.35x |
In the slower lease-up case, NOI runs $255,000, $280,000, $305,000, $330,000 and $340,000, and the sale is priced on $350,200. Stabilized cash-on-cash does not change at all, because stabilized NOI and the loan are the same. Only the IRR shows the cost of waiting two more years, which is why you should never judge a lease-up deal on its stabilized cash yield alone. Model the ramp in the lease-up calculator.
The no-value-add case shows negative leverage. The property returns 6.6% unlevered, which is below the 6.75% interest rate before fees, so borrowing lowers the equity IRR to 6.4% instead of raising it. Leverage magnifies the spread between what the property earns and what the debt costs, in either direction.
Exit cap sensitivity
| Exit cap | Levered IRR | Unlevered IRR | Equity multiple |
|---|---|---|---|
| 6.0% | 24.6% | 14.9% | 2.83x |
| 6.5% (base) | 21.7% | 13.4% | 2.52x |
| 7.0% | 19.0% | 12.0% | 2.25x |
| 7.5% | 16.3% | 10.8% | 2.02x |
Cash-on-cash and DSCR do not change with the exit cap. IRR and multiple do, a lot, because 85% of the distributions come from the sale. The deal was bought at a 6.0% going-in cap; the base case sells at 6.5%, and each half point higher costs roughly 2.6 to 2.9 points of levered IRR. The cap rate guide covers how to choose an exit cap.
Setting your own targets
You will see “typical” self-storage returns quoted everywhere, usually without a source, a date or a definition. Returns depend on the deal's risk, leverage, interest rates, the market and the time period, and an IRR from one model is not comparable with an IRR from another that treats fees, reserves or the exit differently. Treat any unsourced benchmark with suspicion, including a round number from a broker.
Set targets that reflect your own cost of capital and risk tolerance, and use more than one, since each metric catches a different failure:
- An IRR target tests the whole plan, including the exit.
- A cash-on-cash target tests whether the deal pays you while you hold it.
- A DSCR minimum tests whether the deal can carry its debt.
- A yield on cost target tests whether the plan creates value regardless of the exit cap.
Storage Underwriter ships with editable defaults of a 15% levered IRR, 8% cash-on-cash, 1.25x DSCR and 10% yield on cost. These are starting points you are expected to change, not market norms. Against those defaults, the base case above meets the IRR, stabilized cash-on-cash and stabilized DSCR targets and misses on yield on cost (8.28% against 10%). That is a useful result: it says the deal works on paper mainly because of the sale, and would not stand up as well if exit cap rates rose.
Returns are estimates built on assumptions. Confirm loan terms with lenders and tax effects with a CPA before relying on any of these numbers. To test your own deal, run it through the Deal Analyzer, or start with the full process in how to underwrite a self-storage deal.
This guide is general education about self-storage underwriting, not investment, lending, tax or legal advice. Figures from third-party reports are cited with their dates and change over time.