Calculator
Debt Yield Calculator for Commercial Loans
Debt yield is net operating income divided by the loan amount. It shows the return a lender would earn on its loan if it took the property back on day one, independent of interest rate, amortization and cap rate. Many commercial lenders set minimum debt yields around 8% to 10%.
Formula
How underwriters use it
Debt yield became a standard sizing test because it cannot be gamed with low interest rates, long amortization or compressed cap rates. It answers one question: how much income supports each dollar of loan.
Lenders typically size a loan to the most restrictive of DSCR, LTV and debt yield, so run all three to see which one binds.
Frequently asked questions
What is a good debt yield?
Many commercial lenders look for roughly 8% to 10% or higher, with lower minimums accepted for the strongest multifamily and industrial assets and higher ones for hotels, office and transitional properties. Requirements vary by lender and cycle.
Why do lenders use debt yield instead of LTV?
LTV depends on an appraised value that moves with cap rates. Debt yield depends only on current income and the loan amount, so it is a steadier measure of how much cash flow protects the loan.
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