Debt yield is calculated as which of the following formulas?

• A. NOI / loan amount
• B. Cap rate
• C. NOI / total loan amount
• D. Debt service / loan amount

Answer: (C)

Debt yield measures how much annual operating income the property earns relative to the debt financing on it. The calculation uses the annual net operating income and divides it by the total loan amount secured on the property. The emphasis on the total loan amount matters because it reflects all debt encumbering the property, including multiple loans or commitments, not just the balance of a single loan. This ratio shows the cushion available to cover debt obligations per dollar of debt outstanding. It’s different from the cap rate, which uses property value in the denominator, and from debt service coverage, which compares NOI to annual debt service rather than to the loan amount.