Debt Yield

Find Max Loan for a Target Debt Yield (Optional)

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Disclaimer

This calculator provides estimates for informational purposes only and does not constitute financial, medical, legal, or tax advice. Always consult a qualified professional about your specific situation.

How Debt Yield Is Calculated

Debt yield is a commercial loan’s Net Operating Income divided by its loan amount, expressed as a percentage. Enter the property’s annual NOI and the loan amount, and this calculator computes the debt yield. Add a target debt yield in the optional section — your lender’s minimum requirement, if you know it — to see the maximum loan that NOI would support at that threshold.

Debt yield deliberately leaves out the interest rate and amortization schedule entirely, unlike the Debt Service Coverage Ratio (DSCR). That’s exactly why many commercial lenders adopted it alongside DSCR after the 2008 financial crisis: DSCR can look artificially healthy on a loan with a very long amortization period or an interest-only structure, but debt yield can’t be gamed the same way — it only cares about income relative to the loan principal itself.

Key Factors to Consider

  • The NOI figure used matters as much as the calculation itself. Debt yield is only as reliable as the Net Operating Income behind it — an overly optimistic income or expense projection at underwriting can make a deal appear to clear a lender’s minimum debt yield when the property’s actual, stabilized in-place NOI doesn’t.
  • Debt yield ignores the property’s value entirely, unlike LTV. A property purchased at a low cap rate (a high price relative to its NOI) can show a comfortable loan-to-value ratio while still failing a debt yield test, since debt yield only compares NOI to the loan amount, never to the purchase price or appraised value.
  • This metric is standard for stabilized, income-producing commercial properties, not typical single-family residential mortgages — if you’re evaluating a primary home purchase rather than a commercial or investment property, debt yield generally isn’t the relevant underwriting metric a residential lender would use.
  • A loan that clears the minimum debt yield today can become a refinancing challenge later if market cap rates rise (pushing property values down relative to NOI) by the time refinancing is needed, even with no change to the property’s own NOI — worth keeping in mind for a loan structured with a near-term refinance in the plan.

The Formula

Debt Yield=Net Operating IncomeLoan Amount×100%\text{Debt Yield} = \frac{\text{Net Operating Income}}{\text{Loan Amount}} \times 100\%

Rearranged to solve for the maximum loan a given NOI supports at a target debt yield:

Max Loan=Net Operating IncomeTarget Debt Yield\text{Max Loan} = \frac{\text{Net Operating Income}}{\text{Target Debt Yield}}

Worked Example

A property with $120,000 in annual NOI and a $1,000,000 loan:

  1. Debt yield: 120,000÷1,000,000×100%=12%120,000 \div 1,000,000 \times 100\% = 12\% — above the commonly-cited 10% minimum many commercial lenders look for.
  2. At a 10% target debt yield, the same NOI would support a maximum loan of 120,000÷0.10=$1,200,000120,000 \div 0.10 = \$1,200,000.

Common Mistakes

  • Using pro-forma (projected) NOI instead of trailing, in-place NOI. Lenders generally underwrite off the property’s actual trailing 12-month NOI, not an optimistic forward projection — running the calculation with an inflated future NOI can make a deal look like it clears the minimum when the current, real number doesn’t.
  • Confusing debt yield with DSCR. Debt yield never touches the interest rate or loan term; DSCR does. A loan can pass one test and fail the other on the exact same numbers, so check both if your lender requires both.
  • Assuming a strong LTV means debt yield is also fine. Because debt yield ignores purchase price and appraised value entirely, a property bought at a low cap rate can pass an LTV test comfortably while still failing a lender’s minimum debt yield — always check debt yield separately, not as a proxy for LTV.

Useful to Know

Debt yield answers one narrow question a lender actually cares about: if this loan defaulted today and the lender had to recover its principal purely from the property’s income, how long would that realistically take? A 10% debt yield implies roughly 10 years of NOI to recover the loan amount — the higher the debt yield, the faster that theoretical recovery, which is exactly why lenders treat it as a floor rather than a target to hit as closely as possible.

Source: Wall Street Prep: Debt Yield.

Frequently Asked Questions

What is debt yield, and how is it different from DSCR?

Debt yield is Net Operating Income ÷ Loan Amount. Unlike DSCR Calculator, it ignores the interest rate and amortization period entirely, so it can't be inflated by stretching out a loan's term or using an interest-only structure -- which is exactly why many commercial lenders started requiring a minimum debt yield alongside DSCR after the 2008 financial crisis.

What debt yield do lenders typically require?

It varies by lender, property type, and market conditions, but a commonly-cited minimum for commercial loans is around 10%. Riskier property types or looser markets may call for a higher minimum, and some lenders use debt yield as a floor alongside their own DSCR requirement rather than in isolation.

Can I use debt yield to find the maximum loan a property supports?

Yes -- since debt yield is NOI ÷ Loan Amount, rearranging it gives Loan Amount = NOI ÷ Debt Yield. Enter your lender's minimum debt yield in this calculator's optional section to see the largest loan your property's NOI would support at that threshold.

Does debt yield apply to a regular home mortgage?

No -- debt yield is a commercial real estate lending metric used for stabilized, income-producing properties. A typical single-family residential mortgage is underwritten using different metrics entirely, like debt-to-income ratio.

Can a property have a good LTV but a bad debt yield?

Yes -- debt yield ignores property value entirely, unlike LTV. A property bought at a low cap rate (a high price relative to its NOI) can show a comfortable loan-to-value ratio while still failing a lender's minimum debt yield requirement, since debt yield only compares NOI to the loan amount, not the price or appraised value.

What NOI figure should I use when calculating debt yield?

Use the property's actual, trailing 12-month Net Operating Income rather than a projected or pro-forma figure -- lenders generally underwrite off real, in-place income, and an optimistic forward projection can make a deal look like it clears the minimum debt yield when the current number doesn't.

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