What Is Debt Yield?
Debt Yield (DY) = NOI ÷ Loan Amount.
It tells a lender how quickly they could theoretically earn back their principal if they took over the asset and applied the property’s current Net Operating Income to the loan—ignoring interest rates, amortization schedules, and cap rates. That’s why lenders love it: it’s hard to manipulate.
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Example:
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NOI = $1,200,000
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Loan = $10,000,000
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DY = 1,200,000 ÷ 10,000,000 = 12%
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Higher DY = more cushion for the lender (and a stronger deal for you).
DY vs. DSCR vs. LTV (and why DY matters)
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DSCR (Debt Service Coverage Ratio) depends on interest rate and amortization. A 1.25× DSCR at 4% interest can fall apart at 7%.
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LTV (Loan-to-Value) depends on appraisal value, which can be optimistic in hot markets.
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DY depends only on NOI and loan size—so it’s stable when rates or appraisals move.
In volatile markets, lenders (and smart investors) lean on DY to avoid over-leverage.
Where Lenders Use DY
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Acquisition loans: DY screens if your requested leverage fits today’s income.
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Bridge loans: Quick look at income strength without rate debates.
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Refinances: Ensures the asset’s current income can support the new loan regardless of valuation swings.
Rule of thumb varies by lender and cycle. Many target a low double-digit DY for comfort; weaker markets/older assets may demand even higher.
How To Improve Debt Yield (without gimmicks)
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Grow sustainable NOI
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Reduce controllable OPEX (utilities, contracts, payroll structure).
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Increase Other Income (parking, storage, pets, Wi-Fi, smart lockers).
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Tighten rent collection efficiency and cut concessions.
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Right-size leverage
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Bring more equity or mezz with strict return hurdles.
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Consider seller carry on friendly terms to keep senior proceeds sensible.
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Stabilize first, then finance
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Finish lease-up, season collections, trim delinquency—lock in a stronger DY before asking for debt.
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Know what doesn’t change DY
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Interest-only periods and rate buydowns help DSCR/CF, but DY stays the same because it ignores debt service.
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Red Flags & Common Mistakes
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Pro forma NOI in the DY formula. Use trailing actuals or a clearly justified stabilized NOI with executed changes.
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Non-recurring income (one-off fees) baked into NOI. Strip those out.
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Underwriting “phantom savings” you haven’t contracted yet.
Practical DY Targets by Business Plan (illustrative)
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Core/Core+ stabilized: Aim for higher DY (strong in-place NOI, modest leverage).
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Value-add in progress: Lenders may accept lower DY today if the path to stabilization is credible and near-term.
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Heavy lift: Expect higher DY requirements or shorter-term/recourse debt.
Quick Calculator (keep handy)
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DY (%) = (NOI ÷ Loan) × 100
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Max Loan = NOI ÷ Target DY
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Example: NOI $1.2M, Target DY 11% ⇒ Max Loan ≈ $10.9M
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DY Checklist (Pre-Term Sheet)
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Trailing-12 NOI scrubbed for non-recurring items
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Delinquency normalized; collections trend stable
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Vendor contracts executed (not “planned”)
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Sensitivity run: NOI –3% / –5% and its impact on DY
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Ask the lender for their target DY band for your asset class/market
CTA — Book a call for a lender-ready DY strategy:
https://mcqproperties.online/calendar-page/
