📘 What is Debt Yield?

Debt Yield is a key financial metric used by commercial real estate lenders to evaluate the risk of a loan. It measures a property's Net Operating Income (NOI) as a percentage of the total loan amount.

Unlike DSCR, it does not consider interest rates or amortization—making it a straightforward way to assess loan risk based purely on property income.

📌 When and Why It’s Used

Debt Yield is most commonly used by lenders when underwriting commercial real estate loans. It provides a simple, interest-rate-independent measure of how well the income from a property can cover the loan.

A higher debt yield indicates lower lender risk, while a lower debt yield may signal over-leveraging or weak property income. Many lenders require a minimum debt yield (e.g., 10%) before approving financing.

🧮 How It’s Calculated or Applied

Debt Yield is calculated by dividing the property’s Net Operating Income (NOI) by the total loan amount. Since it excludes interest rates and amortization schedules, it offers a "pure" view of risk.

This is especially helpful for comparing loan options or assessing how much leverage a property can reasonably support.

✅ Pros

• Simple, direct risk metric that’s easy to compare across deals
• Not influenced by interest rates or loan terms
• Helps lenders maintain consistent underwriting standards

⚠️ Cons

• Doesn’t reflect actual debt service or interest burden
• May not fully capture investment potential for borrowers
• Less useful for short-term or value-add projects with evolving NOI