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
Related Programs and Tools
Frequently Asked Questions
What debt yield do lenders require?
Many CMBS and bank lenders set a floor of 9 to 10%. Riskier assets or markets can push the minimum higher.
Why use debt yield instead of DSCR?
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.