what is debt yield in real estate

Best answer


10 percent

People also ask


  • What is debt yield in commercial real estate lending?

  • The debt yield is becoming an increasingly important ratio in commercial real estate lending. Traditionally, lenders have used the loan to value ratio and the debt service coverage ratio to underwrite a commercial real estate loan. Now the debt yield is used by some lenders as an additional underwriting ratio.

  • What does the debt yield ratio consider?

  • The only factor that the Debt Yield Ratio considers is how large of a loan the commercial lender is advancing compared to the property’s NOI. This is intentional. Commercial lenders and CMBS investors want to make sure that low interest rates, low caps rates, and high leverage never again push real estate valuations to sky-high levels.

  • How do you calculate debt yield on a property?

  • Debt Yield Formula = 500,000/2,550,000 = 19.60% The lower the yield, greater is the perceived risk of the proposed loan. It for this reason, lenders demand higher debt yields from riskier properties. There is no fixed benchmark, but an ideal yield of 10% is generally accepted.

  • What does it mean when the debt yield is high?

  • Conversely, higher debt yields indicate lower leverage and therefore lower risk. The debt yield is used to ensure a loan amount isn inflated due to low market cap rates, low interest rates, or high amortization periods. The debt yield is also used as a common metric to compare risk relative to other loans.

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