Debt Yield Calculator

What is Debt Yield?

When it comes to the financing of an apartment property purchase, one of the most important metrics taken into consideration would be a property’s debt yield. Debt yield is of high importance to lenders, as it helps them to understand how long it would take for them to recoup their investment in the event of having to take possession of a property after a loan default.

Calculating Debt Yield

Debt Yield Calculator

  • Debt Yield
    is 1.3
  • Minimum acceptable debt yield is 10%

To determine a property’s debt yield, you take the property’s net operating income (NOI) and divide it by the total loan amount. So, if a commercial property’s net operating income was $500,000 and the entire loan amount was $2,500,000, the debt yield would be $500,000 divided by $2,500,000 which equals 0.200 or 20%.

There are many apartment financing options that now require a debt yield minimum in order to mitigate risk, meaning it’s technically possible to calculate a possible maximum loan amount for any such financial vehicle, so long as you know the annual income of a property. For example, using the NOI from the earlier example above, for a loan with a minimum debt yield requirement of 15%, a borrower would be able to take a loan out of up to $3.33 million (as long as that amount was consistent with other factors, like LTV and DSCR).

$500,000/0.15 = $3,333,333