Faro Labs / Tools / Debt yield calculator
Debt yield calculator
The metric commercial lenders trust because it can't be manipulated by rate or amortization: net operating income measured directly against the loan amount.
How debt yield works
DSCR and cap rate both depend on an interest rate and an amortization schedule, which means they can be pushed higher by simply stretching the loan term. A 40-year amortization makes almost any deal look serviceable. Debt yield ignores both. It asks a blunter question: if the lender had to foreclose today and collect nothing but the property's income, how many years of NOI would it take to recover the loan? A 10% debt yield answers "ten years," regardless of what the interest rate happens to be.
Why lenders lean on it
That rate-independence is exactly why debt yield became standard underwriting after the last credit cycle punished loans that looked fine on DSCR but were dangerously over-levered against actual property income. It's now a hard floor in most commercial term sheets, often the binding constraint even when DSCR would allow a larger loan.
Debt yield questions
What is debt yield in commercial real estate?
Net operating income divided by the loan amount. It measures how quickly a lender could recover their principal from the property's income alone if they had to take it back, with no assumptions about interest rate, amortization, or exit cap rate, which is what makes it hard to game.
What is a good debt yield?
Most commercial lenders want at least 10 percent, with many requiring higher for riskier property types or secondary markets. A 10% debt yield means the loan would theoretically be repaid from ten years of net operating income, ignoring debt service entirely. A rough but useful floor on how aggressively a deal is levered.
Debt yield vs. DSCR: what's the difference?
DSCR compares income to the actual loan payment, so it moves with rate and amortization: stretch the amortization and DSCR improves even though the loan amount didn't change. Debt yield compares income only to the loan amount, so it can't be improved that way, which is why lenders increasingly underwrite to both and take whichever constraint is tighter.
Every calculator
Underwriting a deal beyond one ratio?
Faro runs the full picture, cash flow, DSCR, and a target price, from a pasted listing and real comps.
Estimates for analysis and educational use only: not financial, investment, tax, or legal advice. Verify every number independently before making a purchase decision.