CRE 101 · deweyluong.realtor

Debt Yield Explained: The Lender Metric That Caps Your Loan in a Georgia Commercial Deal

Your appraisal can support the loan and your DSCR can pass, and a lender can still cut your proceeds — because of a third number most buyers never calculate. By Túy “Dewey” Luong, CCIM — Founding Broker, SERHANT. Atlanta · 318 closed sales / $281.2M career volume · 678-707-2498

That number is debt yield: NOI divided by the loan amount. It is the lender's simplest risk test, and the hardest to argue with, because it contains no interest rate, no amortization schedule and no appraised value to negotiate. This page gives the formula, a worked example with every input shown, and the checks to run before you ask for a loan amount a property's income cannot carry. It pairs with DSCR and cap rate and NOI — lenders size to whichever test binds first.

The formula

• Debt yield = NOI ÷ loan amount. Nothing else enters the calculation.
• Maximum loan = NOI ÷ the lender's debt-yield floor. Turn the formula around and it becomes a proceeds calculator: at a 10% floor, every $100,000 of underwritten NOI supports $1,000,000 of loan.
• The reciprocal is a payback view: at a 10% debt yield, the property's annual NOI equals the whole loan in about ten years of income. Lenders find that framing intuitive, which is part of why the metric stuck.
• It is also cap rate divided by LTV: a property bought at a 6.67% cap rate with a loan at 66.7% of value produces a debt yield of about 10%. Change the leverage and the debt yield moves; change the rate or the appraisal and it does not.

Worked example. The numbers below are made up and rounded to teach the mechanics. This is not a real property.

• A made-up Gwinnett retail property is priced at $3,600,000 with in-place NOI of $240,000 — a cap rate of about 6.7% on income tenants are actually paying today.
• The buyer asks for a $3,000,000 loan. Debt yield on the ask: $240,000 ÷ $3,000,000 = 8.0%.
• The lender's floor for this property type is stated as 10%. Maximum loan on that test: $240,000 ÷ 0.10 = $2,400,000. The loan is cut by $600,000 — not because the value failed (at $2,400,000 the LTV is only about 67%) and not because of the rate, but because the income does not carry the requested leverage at this lender's standard.
• The buyer's real options are the honest ones: bring the extra $600,000 as equity, negotiate the price, grow the NOI before refinancing, or find a lender whose floor fits stabilized retail income. Extending amortization or shopping the rate does not move this number at all.
• Sensitivity: if a tenant leaves and NOI falls 10% to $216,000, the same $2,400,000 loan drops to a 9.0% debt yield. That is why lenders underwrite NOI conservatively — the floor is set against the income they believe, not the income in the offering memorandum.

Debt yield next to the other three numbers

• DSCR (NOI ÷ debt service): can the income cover the payment? It improves when rates fall or amortization lengthens, which is exactly why lenders do not trust it alone.
• LTV (loan ÷ value): how much cushion sits between the loan and the appraised value? It depends on an opinion of value that can be argued, appealed and revised.
• Cap rate (NOI ÷ price): the property's unlevered yield, with no loan in it at all. Debt yield is what cap rate becomes once a specific loan is attached.
• Cash-on-cash return: the borrower's mirror image of debt yield — what your cash earns after the lender is paid. The lender watches debt yield; you should watch both.

The mistakes that fail this test

• Pro forma NOI: vacant space modeled at full rent. The lender will haircut it back to in-place income, and the loan shrinks with it. (The same trap examined in BOV vs appraisal.)
• Asking for proceeds before asking for the floor: every lender's minimum differs by asset type and income quality. Learn it during the first lender call, not from the term sheet.
• Trying to fix it with structure: interest-only periods and longer amortization help DSCR and cash flow. They do nothing for debt yield, because neither appears in the formula.
• Ignoring lease rollover: income that expires before or during the loan term is discounted hardest. A center whose anchor lease ends in year two does not get sized on today's NOI alone.

Cho nhà đầu tư người Việt

Nhiều nhà đầu tư người Việt tại Metro Atlanta và Gwinnett chuẩn bị khoản vay dựa trên giá trị thẩm định (LTV) và khả năng trả nợ (DSCR), rồi bất ngờ khi ngân hàng cắt số tiền cho vay. Nguyên nhân thường là debt yield: ngân hàng lấy NOI chia cho số tiền vay và yêu cầu một mức tối thiểu. Nếu NOI là $240,000 và mức tối thiểu là 10%, khoản vay tối đa chỉ là $2,400,000 — lãi suất thấp hơn hay thời gian trả nợ dài hơn đều không thay đổi con số này, vì hai yếu tố đó không nằm trong công thức.

Điểm cần kiểm tra trước khi nộp hồ sơ vay: NOI của bạn là thu nhập đang có thật hay dự phóng, hợp đồng thuê của khách thuê chính còn bao lâu, và mức debt yield tối thiểu của ngân hàng đó cho loại tài sản này là bao nhiêu. Biết ba điều đó từ cuộc gọi đầu tiên sẽ giúp bạn tính đúng số vốn tự có cần chuẩn bị. Đây là thông tin giáo dục chung, không phải tư vấn đầu tư, pháp lý hay thuế.

Frequently asked questions

What is debt yield, in plain English?

Debt yield is a property's net operating income divided by the loan amount, shown as a percentage. If a property produces $240,000 of NOI and the loan is $2,400,000, the debt yield is 10%. Lenders read it as the cash return they would earn on their loan if they took the property back tomorrow, with no sale and no refinance. A higher debt yield means a smaller loan relative to the income, and less lender risk.

How does a lender use debt yield to size a loan?

The lender sets a minimum debt yield for the property type and market, then divides the underwritten NOI by that floor. At a 10% floor, $240,000 of NOI supports a maximum loan of $2,400,000 ($240,000 divided by 0.10), no matter what the appraisal says or what loan the borrower asked for. If the borrower wants $3,000,000 on the same NOI, the debt yield falls to 8% and the request fails that test, even if the value could support the loan-to-value ratio.

How is debt yield different from DSCR and LTV?

DSCR divides NOI by the annual debt service, so it moves when the interest rate or amortization changes. LTV divides the loan by the appraised value, so it moves when the appraisal moves. Debt yield divides NOI by the loan amount only, so neither rates, amortization nor appraisal can change it. That is why securitized and balance-sheet lenders use it as a backstop: it is the one sizing test a borrower cannot improve with a cheaper rate quote or a friendlier valuation.

What debt yield do lenders usually require?

There is no single universal floor. It varies by lender, property type, market and how stable the income is, and many lenders treat roughly 8 to 10 percent as a common screening range for stabilized commercial property, with higher floors for weaker income, shorter leases or riskier asset types and lower floors for strong, long-leased credit income. Treat any range as a starting question for the specific lender on your deal, not a promise. The borrower's job is to learn that lender's floor before the term sheet, not after.

Tỷ suất nợ (debt yield) được tính như thế nào và vì sao ngân hàng dùng nó?

Công thức: lấy thu nhập hoạt động ròng (NOI) chia cho số tiền vay. Ví dụ: NOI $240,000 chia cho khoản vay $2,400,000 bằng 10%. Ngân hàng dùng debt yield để giới hạn số tiền cho vay: nếu mức tối thiểu của ngân hàng là 10% thì NOI $240,000 chỉ hỗ trợ khoản vay tối đa $2,400,000, dù giá trị thẩm định có cao hơn. Điểm cần kiểm tra: NOI phải là thu nhập đang có thật đã được ngân hàng chuẩn hóa, không phải con số dự phóng khi lấp đầy mặt bằng trống, vì chỉ cần NOI giảm 10% là debt yield giảm theo và khoản vay bị cắt. Đây là thông tin giáo dục chung, không phải tư vấn đầu tư, pháp lý hay thuế.

This page is general education, not investment, legal, tax or financial advice, and not a projection or guarantee of any loan outcome. Every figure in the worked example is made up and rounded to teach the mechanics, and lender debt-yield floors vary by lender and deal. Túy “Dewey” Luong, CCIM — Founding Broker, SERHANT. Atlanta · 678-707-2498 · dewey.luong@serhant.com