What Is Debt Yield—and Why It Actually Matters

When it comes to commercial real estate financing, everyone’s obsessed with LTV (Loan-to-Value) and DSCR (Debt Service Coverage Ratio).

But there’s another metric smart lenders and investors watch like a hawk:

Debt Yield.

If you don’t understand it—or worse, ignore it—you’re missing one of the clearest indicators of loan risk.

Let’s break it down.

What Is Debt Yield?

Debt Yield = Net Operating Income (NOI) ÷ Loan Amount

It tells you how much income a property generates as a percentage of the loan. It’s not affected by interest rate, amortization, or property value.

Example:

• NOI = $500,000

• Loan = $5,000,000

• Debt Yield = 10%

This means the lender is getting a 10% return (in NOI terms) on their money, regardless of whether the rate is 6%, 8%, or 10%.

Why Do Lenders Care About Debt Yield?

Because it’s the purest risk metric in the deal.

Unlike LTV, which can be gamed by inflated appraisals, or DSCR, which shifts with interest rates and underwriting tricks—debt yield is hard to fudge.

It answers the lender’s core question:

“If I had to foreclose on this property tomorrow, how much income is it generating relative to my loan?”

It cuts through the fluff.

What’s a Good Debt Yield?

It depends on the asset class, market, and risk tolerance, but here’s a general range:

Asset Type	Minimum Target Debt Yield
Multifamily (Strong Market)	8% – 9%
Office / Retail	9% – 11%
Hospitality / Special Use	11% – 13%+

Low debt yield = high risk.High debt yield = safer bet for the lender.

How It Impacts Your Loan Size

Debt yield acts as a natural cap on leverage.

If a property has $400,000 in NOI and a lender wants a 10% debt yield minimum, here’s the math:

$400,000 ÷ 10% = $4,000,000 max loan

Even if your appraisal comes in at $6 million (and LTV looks like 66%), the lender may still cut the loan if the debt yield isn't high enough.

This is how real lenders protect themselves in volatile markets. DSCR and LTV shift. Debt yield doesn’t lie.

Why Debt Yield Is Important for Investors

If you’re buying or refinancing a commercial property, you should run the debt yield calculation before you even call a lender.

Why?

Because if the deal doesn’t meet minimum debt yield thresholds:

• You won’t get the leverage you expect

• Your refinance might fall short

• You might have to bring more cash to close

It also tells you if the property truly cash flows relative to the debt—not just the interest rate.

Final Takeaways:

• Debt Yield = NOI ÷ Loan Amount

• It measures true risk to the lender

• It’s harder to manipulate than LTV or DSCR

• Most lenders want at least 8% – 10%, depending on asset and market

• Smart borrowers use it to gauge leverage and avoid surprises