Debt yield is NOI divided by the loan amount — a lender’s return on income alone, ignoring rate and amortization. Here’s why it can cap your loan even when DSCR looks fine.
Debt yield measures a lender’s return on a loan based purely on the property’s income — ignoring the interest rate and amortization entirely.
It answers a simple question: if the lender had to foreclose and take the property back tomorrow, what unleveraged cash-on-cash return would the loan amount represent? A $5,000,000 loan against a property earning $450,000 in NOI has a debt yield of 9.0%.
Run different scenarios in the Debt Yield Calculator.
Why lenders care about a metric that ignores rate
DSCR and LTV both move with market conditions. When rates fall, the same income supports a larger DSCR-based loan. When values rise, the same property supports a larger LTV-based loan. Both can let leverage creep up exactly when markets are frothy.
Debt yield doesn’t budge with rates or appraised value. It ties the loan directly to in-place income, which is far harder to manipulate. That’s why it became a standard underwriting test after the 2008 cycle, when cheap rates and aggressive valuations had pushed loans well past what income could support. It’s a guardrail against precisely that.
What’s a good debt yield?
Minimums vary by lender and property type, but stabilized senior loans commonly require something in the 8%–11% range — lower for low-risk assets like well-leased multifamily and industrial, higher for hotels and other volatile income streams. A lender’s required minimum sets a hard ceiling on the loan:
A property with $450,000 NOI and a 9% minimum supports at most a $5,000,000 loan on this test — regardless of how low rates go or how high the appraisal comes in.
When debt yield is the binding constraint
Debt yield tends to limit the loan when interest rates are low. Cheap debt makes the DSCR test easy to clear at high leverage, and a strong sale comp can push the appraisal up — but debt yield holds the line on income. In low-rate markets, plenty of borrowers are surprised to learn it’s debt yield, not DSCR or LTV, that’s capping their proceeds.
The reverse holds too: when rates are high, the DSCR test usually bites first and debt yield has slack. The only way to know which constraint binds your deal is to run all three. See how lenders size CRE loans and DSCR vs. debt yield vs. LTV.
How Mercury helps
We test debt yield alongside DSCR and LTV for your specific deal, show you which one limits proceeds, and structure the request to get you the most supportable debt — then run a competitive lender process where we’re licensed or exempt. Try the Debt Yield Calculator, then discuss your financing scenario.
Frequently asked questions
What is a good debt yield?
Stabilized senior loans commonly require an 8%–11% minimum depending on property type and lender, with lower-risk assets at the lower end.
How is debt yield different from cap rate?
Same numerator (NOI), different denominator. Cap rate divides NOI by property value; debt yield divides NOI by the loan amount. Cap rate measures the asset’s return; debt yield measures the lender’s protection.
Why do lenders use debt yield instead of just DSCR and LTV?
Because DSCR moves with interest rates and LTV moves with appraised value — both can inflate leverage in good markets. Debt yield ties the loan to in-place income and doesn’t move with either.
Can a high debt yield requirement reduce my loan?
Yes. If debt yield is your binding constraint, raising the minimum lowers your maximum loan, even when DSCR and LTV would allow more.