Debt yield is a property’s net operating income divided by the loan amount, shown as a percent. A $700,000 NOI on a $10,000,000 loan is a 7% debt yield. Lenders use it as a leverage-independent measure of how quickly their loan could be repaid from income.
Unlike loan-to-value or the debt service coverage ratio, debt yield ignores the interest rate and purchase price, so it does not flatter a loan when rates are low or values are high. Many lenders set a minimum debt yield as a backstop on how much they will lend.
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