Calculators

Debt Yield Calculator

NOI as a percentage of the loan: the commercial lender's rate-proof test of how much debt a property can carry.

How it works

Debt yield is the return a lender would earn on its loan if it had to take the property back. It uses only the income and the loan, so a low interest rate, a long amortization or an optimistic appraisal cannot flatter it. That is why CMBS and many bank lenders cap loans with a minimum debt yield alongside DSCR and LTV. Rearranged, NOI ÷ minimum debt yield gives the largest loan allowed.

debt yield = net operating income ÷ loan amount × 100
NOI
Net operating income, annual, before debt service
Minimum
Commonly 8–10%, higher for riskier property types
Max loan
NOI ÷ minimum debt yield
Cap rate
NOI ÷ property value

Worked example

$180,000 NOI, a requested $1.5M loan on a $2.4M property, and a 10% lender minimum.

  1. 1Debt yield: $180,000 ÷ $1,500,000 = 12.0%
  2. 2Maximum loan at 10%: $180,000 ÷ 0.10 = $1,800,000
  3. 3Loan-to-value: $1,500,000 ÷ $2,400,000 = 62.5%
  4. 4Cap rate: $180,000 ÷ $2,400,000 = 7.5%

12.0% clears the 10% minimum, leaving $300,000 of headroom on this test.

Frequently asked questions

What is a good debt yield?

Around 10% is the reference point most commercial lenders use. Multifamily and grocery-anchored retail in strong markets can get loans at 8–9%, while hotels, offices and secondary markets are often held to 11–13% or more. The bar rises when credit is tight, which is exactly when borrowers notice it.

Debt yield vs DSCR: what is the difference?

DSCR depends on the interest rate and amortization, so it improves when rates fall or the loan is interest-only. Debt yield ignores the loan's terms entirely. After 2008, lenders added it because rock-bottom rates and IO periods had let DSCR look healthy on loans that were simply too large for the income behind them.

How does debt yield relate to the cap rate and LTV?

Debt yield equals cap rate divided by LTV. A property bought at a 7.5% cap with 62.5% leverage has a 12% debt yield. That identity is useful when a deal is priced at a low cap rate: even moderate leverage quickly pushes debt yield below a lender's minimum.

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