Debt Yield can constrain your loan proceeds
When considering a loan for commercial real estate, debt yield is an important metric that can impact the amount of proceeds that may be available.
Debt yield measures a property’s ability to generate income to service debt. It is calculated by dividing the net operating income (NOI) by the loan amount.
A higher debt yield indicates that a property has a stronger ability to generate income to service debt and, as such, may be able to support a larger loan amount. For example, if a property has an NOI of $1 million and a debt yield of 8%, this would indicate that the property could support a loan amount of up to $12.5 million.
Conversely, a lower debt yield indicates that a property has a weaker ability to generate income to service debt and, as such, may be limited to a smaller loan amount. For example, if a property has an NOI of $1 million and a debt yield of 6%, this would indicate that the property could support a loan amount of up to $16.7 million.
When considering a loan for commercial real estate, debt yield is an important metric that can impact the amount of proceeds that may be available. Lenders typically require a minimum debt yield to ensure the property can generate sufficient income to service the debt. As such, it is essential to understand what your debt yield is to know how much you may be able to borrow.
If you’re not sure what your debt yield is, our team of experts can help. We have a wide range of experience in the commercial real estate industry and can provide you with the guidance you need to make the best decisions for your business. Contact us today to learn more.
For more information, reach out to one of our Trusted Capital Advisors today at www.clearwatercm.com.