The formulas
- Debt yield = NOI / loan amount
- Largest loan = NOI / minimum debt yield
How it works
Debt yield is the return a lender would earn on its loan if it took the property today. Unlike DSCR or loan-to-value, it does not depend on the interest rate, the amortization or the cap rate, so lenders use it as a floor on risk.
Use stabilized NOI after expenses and reserves as the lender defines them. Minimums vary by lender and property type, so use your term sheet.
Illustrative figures only. Check the result against your firm's methodology before relying on it.
Common questions
How is it different from cap rate?
Cap rate divides NOI by value. Debt yield divides NOI by the loan.
Does a low rate help?
Not for this test. Debt yield ignores the rate.
Which NOI?
Use the NOI in the lender's underwriting, which may be lower than yours.
Formulas on this page are the standard definitions.
Runs in your browser. The figures you type are not sent to CORAA or stored. Check the result against your firm's methodology before relying on it.