Debt Yield, Explained (and Why Lenders Trust It)

Debt yield is net operating income divided by the loan amount — for example, $750,000 of NOI on a $9,375,000 loan is an 8.0% debt yield. It answers one question a lender cares about more than any other: if they had to foreclose tomorrow, what unlevered return would they earn at their loan basis?

Debt yield strips out the two variables that can distort every other leverage test. It uses the loan amount, not the debt payment, so the interest rate doesn't touch it. And it uses NOI, not an appraised value, so the cap rate doesn't touch it. That independence is the whole point — debt yield is rate-blind and value-blind by construction.

Compare that to the other two tests a lender runs. DSCR can be flattered by a cheap interest rate or an interest-only period, and LTV can be flattered by an aggressive appraisal. When rates fall and values rise, DSCR and LTV both loosen at exactly the moment lending should get more careful. Debt yield doesn't budge. That's why it became the standard floor after the last cycle taught lenders that payment-based and value-based tests move with the market.

Most lenders set a debt-yield floor around 8% to 10%. If a deal comes in below the floor, the lender sizes the loan down until it clears — the same way DSCR can cap proceeds before LTV ever binds. See the metrics hub for how the three tests interact when sizing a loan.

Worked example — debt yield at an 8% floor

The discipline: at an 8% debt yield this loan sits exactly on a typical lender floor — and unlike DSCR or LTV, that 8% won't move if rates fall or the appraisal comes in high.