The Best 5 Debt Yield Calculators of 2022
Debt yield is one of the most important metrics in commercial real estate, particularly when it comes to getting approved for a commercial real estate loan. The debt yield of a property is calculated by taking the property’s Net Operating Income (NOI), by the entire amount of the loan. Debt yield is a good measure of lender risk, as it calculates the percentage return a lender would get if the borrower defaulted and they needed to repossess the property. Most lenders prefer debt yields of at least 8%, with some requiring debt yields of between 10-12%.
In this article, we’ll review the importance of debt yield as well as list the top 5 debt yield calculators online today.
Debt Yield and CMBS Loans
Debt yield is particularly important for CMBS lenders, who will securitize their loans and sell them on the secondary market as commercial mortgage-backed securities. CMBS loans are generally not serviced by their original lender and are instead serviced by a separate servicing company. If a borrower defaults, the loan will be handled by a different company, known as a special servicer, who is responsible for ensuring that the CMBS investors get the same fixed-rate return they were promised upon the initial bond issuance. In many cases, this will mean that they repossess and hold onto the property themselves, utilizing the property’s monthly cash flow to pay the CMBS investors.
Debt Yield Formula
The formula for debt yield is:
Debt Yield = Net Operating Income / Loan Amount
For instance, if a property has an NOI of $200,000, with a total loan of $1,500,000, one would calculate the debt yield by dividing the NOI by the total loan amount. For example:
$200,000/$1,500,000 = 13.3%
Most lenders want debt yields of at least 8-10%. Lenders are generally willing to allow lower debt yields on multifamily properties (say 8%), than for higher-risk properties. For example, most lenders prefer debt yields of at least 12% on hospitality properties.
The Top 5 Best Debt Yield Calculators Online
Below we’ll provide links to the 5 best debt yield calculators on the internet today.
Commercial Loan Direct: Commercial Loan Direct is a well-respected commercial loan brokerage firm. Their yield calculator easy-to-use calculator with only two inputs.
Apartment.loans: Apartment.loans is a website created by Janover Ventures, a multifamily, commercial, and small business loan brokerage founded in 2008. Their debt yield calculator is another easy-to-use calculator with two inputs.
WallStreetMojo: WallStreetMojo is one of the most respected websites on the internet when it comes to providing career advice for financial professionals, including bankers, lenders. Their debt yield calculator comes in the form of a quick video that teaches you how to calculate debt yield using excel.
C-Loans: C-Loans is a major commercial loan broker with over 20 years of continuous operations. They provide another easy-to-use debt yield calculator, this calculator requires an email sign-up, which may be off-putting for some users.
Top-Shelf Models: Financial Models: Top-Shelf Models provides a variety of financial models for Wall Street and banking professionals. This excel-based debt yield calculator is somewhat more advanced and may be better for use by lenders or highly advanced real estate investors.
Debt Yield vs. DSCR
Debt yield and DSCR are two different measures of lender risk. While debt yield is calculated by taking a property’s NOI and dividing it by the property’s debt service (principal and interest), Debt yield, as previously mentioned is calculated by taking the NOI and dividing it by the entire loan amount. In essence, DSCR is a good measure of whether a commercial real estate investor can repay their loan on a monthly basis, while debt yield is a good measure of whether a lender will get a good return on their loan should the property default.