Debt yield
Net operating income divided by the loan amount, shown as a percentage. Commercial lenders use it to size loans regardless of interest rate. A 10% debt yield means NOI covers 10% of the loan each year.
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Part 1 of 4
Why a seller cares
Debt yield is a commercial lender's check that the income covers a fixed share of the loan each year, ignoring the rate. On a larger sale it can cap the buyer's loan below what the price needs.
Part 2 of 4
A simple example
A buyer wants a $1,000,000 loan on your small apartment building netting $90,000. At a 10% minimum debt yield, the lender caps the loan at $900,000.
| The test | The number |
|---|---|
| NOI | $90,000 |
| Minimum debt yield, 10% | A maximum loan of $900,000 |
| The gap | $100,000 the buyer brings in cash, or a lower price |
Debt yield is a floor on income per dollar borrowed, and it is indifferent to interest rates.
Part 3 of 4
What people get wrong
That a low rate lets the buyer borrow more. Debt yield ignores the rate entirely; only the income moves it.
Part 4 of 4 · where to read next
Where it appears in the sale
What a definition is, and what it isn't
Keighbor is a software company, not a law firm, brokerage, or tax adviser. This is general information, not legal, tax, financial, or real estate advice about your sale. Your situation may differ. Before acting on a contract, disclosure, title, tax, or pricing question, ask an appropriately licensed professional in your state.
Written and researched by Keighbor Research · drawn from the reference glossary · how we research and check what we publish
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