Debt Yield
Net operating income divided by the loan amount, measuring the lender's return if they foreclose.
Definition
Debt yield is calculated by dividing a property's net operating income by the total loan amount, expressed as a percentage. A property with $100,000 NOI and a $1,000,000 loan has a 10% debt yield. This metric measures the lender's return independent of interest rate, amortization, or property value — it tells the lender what yield they would earn on their capital if they had to take the property back. Higher debt yields mean lower risk for the lender. Many commercial lenders require a minimum debt yield of 8-10%. Debt yield has become increasingly important in commercial lending as a complement to LTV and DSCR.
How This Relates to DSCR Loans
Some DSCR lenders use debt yield as a secondary metric alongside DSCR and LTV. A strong debt yield can sometimes offset a borderline DSCR.
Related Terms
NOI (Net Operating Income)
A property's total income minus operating expenses, before debt service and taxes.
DSCR (Debt Service Coverage Ratio)
A ratio that measures whether a property's rental income covers its debt payments.
LTV (Loan-to-Value)
The ratio of a loan amount to the appraised value of the property.
Cap Rate
The ratio of a property's net operating income to its market value, used to estimate return potential.
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