Debt yield is calculated by dividing a property's net operating income by the total loan amount, expressed as a percentage. Unlike debt service coverage ratio or loan-to-value, debt yield ignores interest rates and amortization schedules entirely, which makes it a cleaner gauge of how much cushion a lender has if a borrower defaults and the property must be foreclosed and resold.
Commercial lenders commonly set minimum debt yield thresholds, often in the 8 to 10 percent range depending on property type and market, as part of their underwriting guidelines. A low debt yield signals that the loan amount is large relative to the income the property generates, leaving little margin of safety. Borrowers seeking maximum leverage frequently find that debt yield, rather than loan-to-value, becomes the binding constraint on how much a lender will ultimately commit to fund.
Further reading: An Investor's Guide to Real Estate Return Metrics
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