What is debt yield on a rental property and how do you calculate it?
Debt yield is a property's net operating income divided by the loan amount, shown as a percent. A building with $90,000 of NOI and a $1,000,000 loan has a debt yield of 9%. It ignores the interest rate and the loan term, so it shows how much the property earns for each dollar the lender put in.
The formula
Debt yield equals NOI divided by the loan amount. NOI is a year of rent and other income, less operating expenses, before loan payments, depreciation and income tax. If you need to build that number, see how to calculate NOI.
Example a made-up 12-unit building has NOI of $90,000 and a loan of $1,000,000. $90,000 divided by $1,000,000 is 0.09, a debt yield of 9%.
Why lenders look at it
DSCR depends on the loan's rate and how many years it runs. Change the rate and the ratio moves, even though the property did not change. Debt yield does not move with the loan terms, so it shows what the property itself earns against the loan, as if the lender had to take the building back and run it.
Some lenders list a minimum debt yield next to their minimum DSCR and maximum LTV. The minimum is theirs to set, so we do not give one here. Ask your lender if it uses the test.
Debt yield, cap rate and DSCR side by side
| Measure | Formula | Uses the loan terms? |
|---|---|---|
| Cap rate | NOI divided by property value | No |
| Debt yield | NOI divided by loan amount | No |
| DSCR | NOI divided by yearly loan payments | Yes |
| Cash-on-cash return | Cash flow after loan payments divided by cash you invested | Yes |
Cap rate and debt yield use the same NOI. Only the bottom of the fraction differs: value for cap rate and the loan for debt yield. The loan divided by the value is the LTV. See cap rate vs cash-on-cash return.
Example the same made-up building is worth $1,400,000. Cap rate is $90,000 divided by $1,400,000, about 6.4%. Debt yield is 9%. LTV is $1,000,000 divided by $1,400,000, about 71%. Cap rate divided by LTV gives back the debt yield: 6.4% divided by 0.71 is about 9%.
The risk is a wrong NOI
Every ratio on this page is only as good as the NOI behind it. A seller who leaves out a year of repairs, or counts rent that was never collected, makes every ratio look better. When you are buying, rebuild NOI from the seller's bank deposits and bills, not from a summary. See reading a T12 with AI.
How to run the numbers on a building, step by step
- Build NOI from a T12 you have checked against bank deposits, and leave out loan payments, depreciation and income tax.
- Get the loan amount you are being offered, not the one you hope for.
- Divide NOI by the loan amount to get the debt yield.
- Also compute DSCR and LTV, so you see the building through all three lenses.
- Change one input at a time (rent, vacancy, a big repair) and see which ratio moves first.
Each ratio breaks in a different way. DSCR falls first when rates rise, LTV falls first when values drop, and debt yield falls when the building earns less. Looking at all three shows which risk you are carrying. The Example numbers on this page are made up and show arithmetic only; they are not a typical building.
How DoorKeeping fits
For a building you own, DoorKeeping's T12 gives you each month's income and expenses by account, which is the starting point for NOI. Ask Claude or ChatGPT for the T12, then decide which lines are operating costs. DoorKeeping does not set loan terms. It costs $2 per unit per month.
Sources
- CFPB, What is a loan-to-value ratio?, read Oct 31, 2026
- IRS, Publication 527, Residential Rental Property, read Oct 31, 2026
Questions
- What is a good debt yield?
- Lenders set their own minimums, and they vary by property type and loan. Ask the lender you are using.
- Is debt yield the same as cap rate?
- No. Both start with NOI, but cap rate divides by the property's value and debt yield divides by the loan amount.
- Does debt yield include the interest rate?
- No. That is the point: it stays the same whatever rate or term the loan has.