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    Debt Yield

    Net operating income divided by the loan amount, a leverage independent measure of lender risk.

    Debt yield is net operating income divided by the loan amount, shown as a percentage. It tells a lender the cash return they would earn if they foreclosed and owned the property outright at the loan balance. A $2,000,000 loan on a property with $200,000 NOI carries a 10% debt yield.

    Unlike DSCR and LTV, debt yield ignores the interest rate, amortization, and market value. That makes it a clean measure of risk that cannot be gamed by a low rate or a generous appraisal. CMBS and many bank lenders set a floor, often 9 to 10%, and size the loan so the deal clears it.

    When debt yield becomes the binding constraint, it caps proceeds even if DSCR and LTV would allow more. Raising NOI is the only way to lift both the loan amount and the debt yield at once.

    Formula
    Debt Yield = Net Operating Income / Loan Amount
    Worked Example

    A lender considers a $4,000,000 loan on a property with $360,000 in NOI. Debt yield = 360,000 / 4,000,000 = 9%. If the lender requires 10%, the loan is capped at $3,600,000.

    Why It Matters

    Debt yield often decides the true loan ceiling on stabilized deals. Because it strips out rate and value, it can limit proceeds even when other ratios look fine, so it is worth checking early.

    Related Terms

    Debt Service Coverage Ratio (DSCR)

    The ratio of a property's net operating income to its annual debt service, showing how comfortably income covers loan payments.

    Loan to Value Ratio (LTV)

    The loan amount as a percentage of a property's appraised value, showing how much of the purchase a lender will finance.

    Net Operating Income (NOI)

    A property's income after operating expenses but before debt service, income taxes, and capital costs.

    Capitalization Rate (Cap Rate)

    The ratio of net operating income to property value, used to gauge return and estimate what a property is worth.

    Related Programs & Tools

    CMBS LoansCommercial MortgageMax Loan Calculator

    Looking for another term? Browse the full commercial lending glossary.

    Frequently Asked Questions

    Many CMBS and bank lenders set a floor of 9 to 10%. Riskier assets or markets can push the minimum higher.

    Debt yield ignores rate and amortization, so it cannot be inflated by cheap short term financing. It gives lenders a stable read on risk across rate cycles.

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