The direct answer
Debt yield is underwritten annual NOI divided by outstanding loan principal, expressed as a percentage. It measures income relative to lender exposure without directly using interest rate or amortization. There is no single universally appropriate target because lenders and property risks differ.
Calculate the ratio consistently
For a $300,000 underwritten NOI and $3 million loan, debt yield equals 10%. Align the NOI definition with the lender’s methodology.
To apply the approach to an editable scenario, use the Debt Yield Calculator. For the neighboring question, explore Commercial Real Estate Investment Calculator.
Understand why benchmarks vary
Property type, lease duration, tenant concentration, sponsor strength, business plan and lender policy can change acceptable debt yield.
Compare with DSCR and LTV
Debt yield ignores payment terms; DSCR captures modeled debt-service burden; LTV depends on property value. Together they reveal different aspects of risk.
Worked example
A property with $400,000 NOI and a $5 million loan has 8% debt yield. The same NOI with a $4 million loan gives 10%, even if mortgage interest rates are unchanged.
Common mistakes and limitations
Do not claim a debt yield such as 10% is legally required or universally sufficient for approval.
Debt yield is not DSCR or LTV and does not incorporate interest rate or amortization.
Frequently asked questions
Does debt yield depend on mortgage rate?
Not directly; its denominator is loan balance rather than payment.
Can two loans have identical DSCR but different debt yield?
Yes. Different amortization, rates and balances can produce that result.
Sources and further reading
The article’s examples are illustrative arithmetic. The references below provide context for operating, valuation or transaction concepts; they do not endorse the assumptions or the calculator.
- Office of the Comptroller of the Currency — Comptroller's Handbook — Commercial Real Estate LendingNOI, direct capitalization, cap-rate valuation and DCF concepts for commercial real estate.
- Appraisal Institute — Basic Formulas — Income CapitalizationIncome/cap-rate/value relationships, gross income multiplier and debt-coverage formula references.
Read our editorial policy for the scope of these educational methods.