What is the debt yield?
Enter a property's yearly net operating income (NOI) and the loan amount to see the debt yield, the measure commercial lenders use alongside the DSCR. Or enter a minimum debt yield to see the largest loan the NOI supports.
- Debt yield
- 9%
An NOI of $900,000.00 on a loan of $10,000,000.00 is a debt yield of 9%.
Debt yield: 9%. An NOI of $900,000.00 on a loan of $10,000,000.00 is a debt yield of 9%.
The results are estimates for information only. They are not financial, tax, or legal advice. Check the numbers with your lender or a qualified professional before you decide. Terms of use
How to calculate
Computes the debt yield of a commercial real estate loan, net operating income as a percent of the loan amount, or the loan or NOI from the other two.
Example with the default inputs (Net operating income (NOI) $900,000.00, Loan amount $10,000,000.00): An NOI of $900,000.00 on a loan of $10,000,000.00 is a debt yield of 9%.
Formula: Debt yield = NOI ÷ loan amount × 100; loan amount = NOI ÷ debt yield × 100; NOI = debt yield × loan amount ÷ 100.
- NOI is the yearly net operating income: income from the property minus its operating expenses, before debt service, capital spending and income tax.
- The loan amount is the whole loan (or its balance) secured by the property.
- Arithmetic is exact on the typed decimals; the debt yield shows to 2 decimals and money to the cent, halves up.
Worked examples
Each example is checked against the calculator on every build.
- Net operating income (NOI) $900,000.00, Loan amount $10,000,000.00 gives Debt yield 9%.Source: BANK5 2023-5YR2, Commercial Mortgage Pass-Through Certificates, final prospectus filed under Rule 424(b)(2) by Morgan Stanley Capital I Inc., 2023, "Underwritten NOI Debt Yield" (the related Underwritten NOI divided by the Cut-off Date Balance of that Mortgage Loan). https://www.sec.gov/Archives/edgar/data/1547361/000153949723001217/n3498_x11-424b2.htm
- Net operating income (NOI) $500,000.00, Debt yield 10% gives Loan amount $5,000,000.00.Source: BANK5 2023-5YR2, Commercial Mortgage Pass-Through Certificates, final prospectus filed under Rule 424(b)(2) by Morgan Stanley Capital I Inc., 2023, "Underwritten NOI Debt Yield" (the related Underwritten NOI divided by the Cut-off Date Balance of that Mortgage Loan). https://www.sec.gov/Archives/edgar/data/1547361/000153949723001217/n3498_x11-424b2.htm, worked back
- Loan amount $8,000,000.00, Debt yield 8.5% gives Net operating income (NOI) $680,000.00.Source: BANK5 2023-5YR2, Commercial Mortgage Pass-Through Certificates, final prospectus filed under Rule 424(b)(2) by Morgan Stanley Capital I Inc., 2023, "Underwritten NOI Debt Yield" (the related Underwritten NOI divided by the Cut-off Date Balance of that Mortgage Loan). https://www.sec.gov/Archives/edgar/data/1547361/000153949723001217/n3498_x11-424b2.htm, worked back
- Net operating income (NOI) $1,234,567.89, Loan amount $9,876,543.21 gives Debt yield 12.5%.Source: BANK5 2023-5YR2, Commercial Mortgage Pass-Through Certificates, final prospectus filed under Rule 424(b)(2) by Morgan Stanley Capital I Inc., 2023, "Underwritten NOI Debt Yield" (the related Underwritten NOI divided by the Cut-off Date Balance of that Mortgage Loan). https://www.sec.gov/Archives/edgar/data/1547361/000153949723001217/n3498_x11-424b2.htm
How it works
With the yearly net operating income NOI, the loan amount L and the debt yield in percent:
- Debt yield = NOI ÷ L × 100
- Loan amount L = NOI ÷ debt yield × 100
- NOI = debt yield × L ÷ 100
Fill in any two of the three, and the calculator works out the third. If you fill in all three, they must agree.
Rules:
- The NOI is $0 or more and the loan amount more than $0, each at most $1 quadrillion. The debt yield is from 0% to 1,000%.
- A debt yield above 1,000% gives no answer: "The debt yield would be more than 1,000%: check the NOI and the loan amount."
- A debt yield of 0% cannot give the loan amount (this message comes before the next one): "A debt yield of 0% fits any loan amount: enter more than 0%."
- An NOI of $0 with a debt yield above 0% cannot give the loan amount: "With an NOI of $0, no loan gives a debt yield above 0%: enter the NOI."
- A loan amount worked out above $1 quadrillion gives no answer: "The loan amount would be more than $1 quadrillion: check the other values." So does an NOI worked out above $1 quadrillion: "The NOI would be more than $1 quadrillion: check the other values."
- With fewer than two values filled in, the page asks for any 2 values. Three values that do not agree give no answer, and the page asks you to clear one of them.
- A result that is not 0 but too small to show as a number gives no answer: "The result is too small to show as a number."
- The arithmetic is exact on the decimals you type. The debt yield shows to 2 decimals and money to the cent, with halves rounded up (away from 0).
Assumptions
- The NOI is for one year, before debt payments, capital spending and income tax.
- The loan amount is the whole loan (or its balance) secured by the property.
Worked examples by hand
$900,000 of NOI on a $10,000,000 loan. Debt yield = 900,000 ÷ 10,000,000 × 100 = 9%.
The largest loan at a 10% minimum. NOI $500,000: L = 500,000 ÷ 10 × 100 = $5,000,000.
The NOI an $8,000,000 loan needs at 8.5%. NOI = 8.5 × 8,000,000 ÷ 100 = $680,000.
Amounts with cents. NOI $1,234,567.89 on a loan of $9,876,543.21: 1,234,567.89 ÷ 9,876,543.21 × 100 = 12.49999…%, shown as 12.5%.
Other questions people ask
What is debt yield?
Debt yield is a commercial property's yearly net operating income (NOI) as a percent of the loan amount. It shows the return a lender would earn on the loan from the property's income alone.
How do I calculate debt yield?
Divide the NOI by the loan amount and multiply by 100. A property with $900,000 of NOI and a $10,000,000 loan has a debt yield of 900,000 ÷ 10,000,000 × 100 = 9%.
How much can I borrow at a minimum debt yield?
Divide the NOI by the minimum debt yield and multiply by 100. With $500,000 of NOI and a 10% minimum, the largest loan is 500,000 ÷ 10 × 100 = $5,000,000. Enter the NOI and the debt yield above to work it out.
What is a good debt yield?
Lenders set their own minimums, and higher is safer for the lender. In one 2023 commercial mortgage pool (BANK5 2023-5YR2), the 20 loans had debt yields on underwritten NOI from 10.4% to 19.2%, and 13.9% on average weighted by loan size.
How is debt yield different from DSCR?
The debt service coverage ratio (DSCR) divides NOI by the yearly loan payments, so it changes with the interest rate and the amortization. Debt yield divides NOI by the loan amount alone, so neither the rate nor the payment schedule changes it.
How is debt yield different from the cap rate?
The cap rate divides NOI by the property's value; debt yield divides it by the loan. When the loan is 60% of the value, the debt yield is the cap rate ÷ 0.6.
What NOI should I use?
Use the yearly NOI the lender underwrites: income from rents and other operations minus operating expenses such as utilities, repairs, management, insurance and real estate taxes. Leave out debt payments, capital spending and income tax.