The Debt Yield Test on Multifamily Bridge Loans: A Second Ratio That Can Cap Your Loan Size
You run the numbers on a 24-unit value-add apartment deal: $3,000,000 purchase price, 75% loan-to-cost on a multifamily bridge program, and you expect a $2,250,000 loan quote. The term sheet that comes back says $2,000,000. Nobody changed the LTC. What capped you is a ratio most borrowers never hear about until it bites: debt yield.
What debt yield actually measures
Debt yield is the property’s net operating income divided by the loan amount — not the purchase price, not the appraised value. It asks one question: if this loan went bad and the lender had to take the property back, how fast would the in-place income pay down the balance? A low debt yield means a lot of loan sitting on top of a small income stream, which worries a bridge lender more than a soft exit price does.
LTC and ARV test the collateral. Debt yield tests the income. On a stabilized or near-stabilized multifamily deal, underwriting runs both and binds on whichever produces the smaller loan.
The arithmetic
Take the 24-unit example. Trailing twelve-month NOI on the property is $180,000 — a 6% cap rate on the $3,000,000 basis, which is ordinary for a value-add deal that hasn’t been repositioned yet.
On LTC alone, at 75%, the loan amount would be $2,250,000.
On debt yield, if the floor used on this file is 9%, the maximum loan the income supports is $180,000 ÷ 0.09 = $2,000,000.
$2,000,000 is lower than $2,250,000, so debt yield — not LTC — is the binding constraint. You walk away with 66.7% of purchase price financed, not 75%, and the $250,000 gap has to come from your own equity or a smaller purchase.
| Test | Formula | Result |
|---|---|---|
| LTC cap (75%) | $3,000,000 × 75% | $2,250,000 |
| Debt yield cap (9% floor, indicative) | $180,000 ÷ 9% | $2,000,000 |
| Loan actually offered | Lower of the two | $2,000,000 |
Flip the NOI higher — say the seller already pushed rents and trailing NOI is $220,000 on the same $3,000,000 basis — and debt yield stops binding: $220,000 ÷ 9% = $2,444,444, well above the $2,250,000 LTC cap. LTC becomes the constraint again and you get the full 75%. The ratio that caps you moves with the deal, not with the program.
Why bridge lenders bother with a second ratio
LTC and ARV depend on a valuation — an appraiser’s opinion that can move with the market, and on a bridge loan the exit is still a plan, not a fact yet. Debt yield depends on income that is already showing up on a rent roll. In a market where cap rates can compress and decompress by a point or more in eighteen months, a loan sized purely on projected value is exposed to that swing for the life of the loan. A floor on income-to-loan is how underwriting keeps the deal financeable even if the exit cap rate comes in softer than the pro forma assumed.
What actually moves your number
- Raise in-place NOI before you ask for proceeds. Even partial unit turns at the existing lease-up pace push trailing NOI up, and the debt yield cap with it.
- Buy at a basis the income already supports. A deal priced to a 5.5% cap rate on acquisition tends to hit a debt yield floor long before LTC does; a deal at 6.5%–7% usually clears a 9% floor with room to spare.
- Ask what floor the specific file is using. Debt yield floors move with loan size, asset class and market — the 670 FICO minimum and the 75% LTC / 65% ARV bands get you in the door, but the debt yield floor itself is set loan by loan in underwriting, not published as one flat number.
- Take a smaller loan on purpose. If the debt yield cap is binding, bringing in more of your own cash doesn’t raise the ceiling — it gets you under it with less leverage, which is sometimes the right trade and sometimes isn’t.
When this isn’t the ratio you’re looking for
If you came here because your fix-and-flip quote or a 1-4 unit DSCR rental quote came back lower than expected, debt yield isn’t why. Fix-and-flip loans are sized off loan-to-cost and after-repair value, full stop — there’s no income ratio in that underwriting because there’s no rent roll yet. A 1-4 unit DSCR rental loan is sized off loan-to-value and the DSCR ratio itself, rent against the proposed payment, not a separate debt-yield floor layered on top. Debt yield shows up specifically in multifamily (5+ unit) and commercial-style bridge underwriting, where the deal already produces, or is expected to shortly produce, rental income large enough to measure against the loan balance.
And if the property is already stabilized rather than mid-repositioning, a straight DSCR cash-out refinance is usually the cleaner read on what you can borrow than running a bridge debt-yield analysis on a deal that no longer needs a bridge.
The practical takeaway
Before you build a pro forma around 75% LTC on a multifamily bridge deal, divide the trailing NOI by a 9% floor as a sanity check, and treat that floor as indicative — the actual number is set per file in underwriting. If the result comes in under the LTC amount, your real proceeds are the debt yield number, and your equity requirement just went up. Catching that in your own underwriting, before you’re under contract, is a lot cheaper than catching it in the term sheet.
Current indicative terms, rates and LTC/ARV bands for the multifamily bridge program are on the multifamily & mixed-use loans page and the current rates page. Every figure above is indicative and subject to underwriting. If the deal is closer to a straight bridge-to-stabilize than a multifamily acquisition, the bridge loan page covers that structure, and the FAQ has more on how files like this one get placed.