Debt yield calculation: a worksheet for reviewing loan inputs

Debt yield is annual net operating income divided by the loan amount, expressed as a percentage. The division is simple. A useful underwriting worksheet also shows which income figure was used, what debt balance it covers and how those choices affect the result.

This guide provides a calculation and review format for an acquisitions or finance team. The examples are hypothetical and do not represent a lender's terms or a financing approval.

Calculate the ratio on a stated basis

Debt yield = annual NOI ÷ loan amount × 100.

For example, $540,000 of annual NOI divided by a $6,000,000 loan produces a 9.0% debt yield. One year of that NOI equals nine cents for each dollar of the loan balance. It is not the loan's interest rate or a forecast of the lender's realized return.

The OCC's Commercial Real Estate Lending handbook describes debt yield as independent of the interest rate, amortization period and capitalization rate. It also says the measure should be considered with other criteria, including debt-service coverage and loan-to-value ratios. A single percentage does not settle a lending decision.

Write down the inputs before calculating

Put an input record above the calculation. Give the reviewer enough information to reproduce it without searching through a separate email thread.

Input	What to record	Review question
Property and scope	Asset, currency and any included properties	Do the income and debt cover the same assets?
Income basis	Reporting period, source file and selected annual NOI	Is this historical, annualized current or projected income?
Adjustments	Each adjustment, supporting evidence and approver	Can the reviewer bridge the source total to the selected NOI?
Debt basis	Amount, balance date and facilities included	Does the lender's test use current funded debt, proposed proceeds or another defined amount?
Requirement	Minimum yield, applicable definition and dated source	Was it confirmed for this loan and this calculation?

Keep historical and projected cases in separate columns. Do not label a projected stabilized result as current performance. For a loan with future advances or multiple facilities, obtain the required debt definition rather than silently using the smallest balance.

Reserve treatment deserves an explicit line. The OCC's underwriting definition of NOI includes an allowance for replacement reserves even though it excludes capital items themselves. A source statement or lender worksheet may use different labels. Record the actual convention and reconcile the difference instead of assuming that every number called NOI is comparable.

Show the effect of a reviewed adjustment

Suppose a source operating summary shows $600,000 of annual income after its stated expenses. For this illustration, the reviewer makes a $36,000 adjustment and applies a $24,000 reserve allowance that was not already included. The selected annual income for this test is $540,000.

Illustrative step	Amount
Source operating summary	$600,000
Reviewed adjustment	−$36,000
Reserve allowance for this test	−$24,000
Selected annual income	$540,000
Loan amount	$6,000,000
Debt yield	9.0%

Using the unadjusted $600,000 would produce 10.0%. That one percentage point comes from the input choices. The arithmetic cannot establish whether the adjustments are justified; the worksheet needs their supporting records and review sign-off. Check that an allowance has not been deducted twice.

Reverse the calculation for an illustrative loan limit

Loan amount supported by the debt-yield test = selected annual NOI ÷ required yield as a decimal.

If the assumed requirement is 10%, enter 0.10. With $540,000 of selected NOI, the calculation is $540,000 ÷ 0.10 = $5,400,000. This is the limit from this one assumed test, not promised proceeds.

Use a small sensitivity table to show what changes when the income assumption changes. In the following example, the loan request stays at $6,000,000 and the illustrative requirement stays at 10%.

Selected annual NOI	Yield on requested loan	Loan limit at assumed 10%
$480,000	8.0%	$4,800,000
$540,000	9.0%	$5,400,000
$600,000	10.0%	$6,000,000

In a spreadsheet, divide the two amounts and format the result as a percentage. Do not also multiply by 100 if percentage formatting already performs that display conversion. Label the input cell for a minimum yield clearly so that 10 and 10% cannot be confused.

Hand off a calculation someone can check

Before circulating the worksheet, have a second reviewer trace the selected income to its source, recalculate the adjustment bridge and check the loan definition. Retain the dated requirement alongside the calculation. Show unresolved questions next to the output rather than burying them in a supporting file.

Compare the result with the other applicable financing tests and record their assumptions separately. If a file or loan proposal changes, identify the affected inputs and issue a revised worksheet with a clear version date. Keep the previous version available so the team can explain why the result moved.

Scope support around the reviewed output

Leni's deal flow and diligence support includes reconciling rent rolls and trailing financials, populating models and comparing debt scenarios. A useful scope for this task is a source register, documented income adjustments, a debt-yield worksheet and an exception list for your team's approval.

For recurring work, Leni's own-your-AI platform brings supported data and company knowledge into workflows with compatible models. Agree the source connections, calculation definitions and review responsibilities first. The investment team and lender retain their respective decisions.