What Is Debt Yield?
Debt yield is a property's net operating income divided by the loan amount. Commercial lenders use it to limit how much they will lend, because unlike DSCR it does not change with the interest rate or amortization - it shows the return the lender would earn on the NOI if it had to take the property back.
Debt Yield in plain English
Debt yield asks: if the lender had to take the property back, what return would its NOI pay on the loan? $150,000 of NOI on a $1.5 million loan is a 10% debt yield.
Commercial lenders set minimum debt yields so loan size stays tied to income even when interest rates are low or the loan is interest-only.
Formula
Debt Yield = NOI ÷ Loan Amount × 100- NOI
- Net operating income, usually in-place or underwritten by the lender.
- Loan Amount
- The total loan requested.
Related forms: Maximum Loan = NOI ÷ Minimum Debt Yield.
Worked example
Debt yield and the largest loan a lender will make
Illustrative example - round numbers, not current market data. Calculated with Reaixo's calculator engines.
Assumptions
- Property NOI
- $150,000
- Loan requested
- $1,650,000
- Lender's minimum debt yield (illustrative)
- 10%
| Step | Calculation | Result |
|---|---|---|
| 1. Debt yield on the request | $150,000 ÷ $1,650,000 × 100 | 9.09% |
| 2. Largest loan at the minimum | $150,000 ÷ 10% | $1,500,000 |
Debt yield: 9.09%. At 9.09%, the request misses a 10% minimum, so the lender would cap the loan near $1,500,000 - $150,000 less - whatever the interest rate.
What this calculation leaves out
- Debt yield ignores the interest rate and amortization, so it is usually checked alongside DSCR and LTV, and the most restrictive test sets the loan size.
- Minimums vary by lender, property type and market cycle.
Calculate Debt Yield
Debt yield calculator
Annual NOI ÷ Loan Amount × 100
Why it matters
When rates are low, DSCR can allow a large loan; a debt-yield minimum keeps loan size tied to the income itself.
When Debt Yield is used
- Estimating the largest commercial loan a property can support.
- Comparing loan risk across properties regardless of rate or term.
- Reading term sheets that state a minimum debt yield covenant.
Common mistakes
- Sizing a loan on DSCR alone when the lender also tests debt yield.
- Using projected rather than in-place NOI when the lender will not.
- Expecting debt yield to improve when rates fall - it does not change.
Debt Yield: frequently asked questions
What is a good debt yield?
It depends on the lender, property type and market. Minimums commonly sit in the high single digits to low double digits; ask each lender.
How is debt yield different from DSCR?
DSCR divides NOI by the loan payment, so it changes with the rate and amortization. Debt yield divides NOI by the loan amount, so it does not.
Do residential mortgages use debt yield?
No. It is a commercial lending measure; residential loans are underwritten on the borrower's income and DTI.
Where it fits
- Commercial, Financing: next, DSCR.
More Investing Terms
Recommended next step
Work out the NOI the lender will divide by the loan.
Rental cash flow calculator →Apply it to a specific property: Rental Property Analysis.
Sources and review
No regulator defines this term; the page follows common industry practice.
Where this applies: Not regulated. Investment and valuation ratios are industry and appraisal conventions; lenders, appraisers and analysts may define inputs differently, so check how a figure was calculated.
Last reviewed: · Updated:
Examples use illustrative figures; rules of thumb are labelled as such. Rates, limits and program rules change - confirm current figures with your lender or a qualified professional.
This definition is provided for general educational purposes and is not financial, legal, tax, or real estate advice. Verify important decisions with appropriately qualified professionals.
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