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Debt Yield

Financing Concepts

Definition

Net operating income divided by the total loan amount, used by commercial lenders to assess risk independent of interest rates.

Debt yield is calculated by dividing a property's net operating income by the total loan amount, providing a measure of risk that is independent of the interest rate, amortization schedule, or property value. Commercial lenders increasingly use debt yield as a key underwriting metric because it cannot be manipulated by adjusting cap rates or extending amortization periods. Most commercial lenders require a minimum debt yield of 8-10%. For investors, understanding debt yield helps predict how much financing a commercial property can support and whether a deal will meet lender thresholds.

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