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Debt Yield Calculator

Find the debt yield of a property loan.

Result

8.13%

How it is calculated

Debt yield measures how much income a property produces relative to the loan against it, ignoring interest rate and loan term: Debt yield = NOI / Loan amount × 100. NOI is the annual net operating income, meaning rental income minus operating costs but before loan payments and taxes on profit. Both values use the same currency. The loan must be above zero and NOI cannot be negative. The result is a percentage with two decimals. Lenders set their own minimums, so what counts as acceptable depends on the lender and property type.

Worked example

A building earns 650,000 a year in NOI and the loan request is 8,000,000. Divide: 650,000 / 8,000,000 = 0.08125. Multiply by 100 to get a percentage of 8.125, which the tool rounds half-up to two decimals. The debt yield is 8.13%. This means that if the lender had to take the property, the income would equal about 8.1% of the loan every year.

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Common mistakes

  • Using gross rent instead of NOI. Operating costs such as maintenance, insurance and property tax must be subtracted first.
  • Subtracting the loan payments from NOI; debt service is not part of NOI.
  • Entering monthly NOI against the full loan; use the annual figure.
  • Confusing debt yield with cap rate. Cap rate divides NOI by the property value; debt yield divides it by the loan.
  • Putting the property value in the loan field.

Sources

About this calculator

Debt yield is calculated as NOI ÷ Loan Amount × 100, expressing a commercial property's net operating income as a percentage of the loan balance rather than as a percentage of the purchase price or property value. Unlike loan-to-value or debt service coverage ratio, debt yield ignores interest rate, amortization period and capitalization rate entirely, which makes it hard to flatter through creative loan structuring.

Commercial mortgage lenders, especially in CMBS (commercial mortgage-backed securities) underwriting, set minimum debt yield thresholds — commonly around 10% — as a floor test independent of other ratios, since it directly answers how quickly a lender could recover the loan balance from property income alone if it had to foreclose. Real estate investors and mortgage brokers calculate it early in a deal to gauge how much leverage a lender is likely to approve.

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Comments (1)

  • Editorial team

    Debt yield ignores interest rate and amortisation, which is exactly why lenders like it: it shows the return on the loan if they had to take the property, regardless of the loan terms. Use net operating income before debt payments, not after them. Commercial lenders often set a minimum, but the actual threshold varies by lender and property type, so ask yours. What NOI and loan size are you testing? Share a scenario and what it showed you.

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