Debt Yield is a measure of asset cash flow relative to which item?

Debt Yield is a measure of asset cash flow relative to which item?

• A. Total Loan Amount
• B. Purchase Price
• C. Net Operating Income
• D. Equity Invested

Answer: (A)

Debt yield measures how much annual property cash flow (net operating income) is available relative to the size of the loan. It is calculated as NOI divided by the total loan amount, so the denominator is the loan amount, not the purchase price or the equity invested. This gives lenders a sense of how much NOI would cover the loan principal if there were no other costs, with a higher debt yield indicating greater lending cushion. For example, with NOI of 1,000,000 and a loan amount of 8,000,000, debt yield is 12.5%. This focus on NOI relative to the loan amount distinguishes it from metrics tied to price or equity.

Debt yield measures how much annual property cash flow (net operating income) is available relative to the size of the loan. It is calculated as NOI divided by the total loan amount, so the denominator is the loan amount, not the purchase price or the equity invested. This gives lenders a sense of how much NOI would cover the loan principal if there were no other costs, with a higher debt yield indicating greater lending cushion. For example, with NOI of 1,000,000 and a loan amount of 8,000,000, debt yield is 12.5%. This focus on NOI relative to the loan amount distinguishes it from metrics tied to price or equity.