1. What is Debt Yield?

Debt Yield measures the relationship between the property's net operating income (NOI) and the amount of debt financing obtained for the property. It is a key metric used by lenders to assess the risk of a commercial real estate loan.

2. How Does the Calculator Work?

The calculator uses the Debt Yield formula:

Where:

• \( DY \) — Debt Yield
• \( NOI \) — Net Operating Income ($)
• \( Loan\ Amount \) — The original principal on a new loan or principal remaining on an existing loan ($)

Explanation: The equation calculates the ratio of net operating income to the loan amount, providing a measure of the property's ability to generate income relative to its debt burden.

3. Importance of Debt Yield Calculation

Details: Debt Yield is a crucial metric for lenders as it helps determine the risk associated with a commercial real estate loan. A higher debt yield indicates lower risk, while a lower debt yield suggests higher risk.

4. Using the Calculator

Tips: Enter Net Operating Income and Loan Amount in dollars. Both values must be positive numbers greater than zero.

5. Frequently Asked Questions (FAQ)

Q1: What is a good Debt Yield ratio?
A: Generally, a Debt Yield of 10% or higher is considered good, but this can vary by lender and property type.

Q2: How is Debt Yield different from Debt Service Coverage Ratio?
A: Debt Yield focuses on the relationship between NOI and loan amount, while DSCR compares NOI to debt service payments.

Q3: Why do lenders use Debt Yield?
A: Lenders use Debt Yield to assess the risk of a loan independent of interest rates and amortization schedules.

Q4: Can Debt Yield be used for all property types?
A: Yes, Debt Yield is applicable to various commercial property types including office, retail, industrial, and multifamily properties.

Q5: How does Debt Yield affect loan terms?
A: Properties with higher Debt Yield ratios typically qualify for better loan terms, including lower interest rates and higher loan-to-value ratios.