Which lender measure most accurately summarizes loan quality? Arguments…
Loan-to-Value (LTV):
"Lenders don’t want to own your real estate—they want to know their capital is protected. The first line of defense? The value of the asset. LTV is the simplest, most direct way to measure risk. If the property declines in value, the lender needs to know they can still get their money back. Leverage too high? You’re playing with fire. If you don’t control your downside, the market will do it for you—and not on your terms."
Debt Service Coverage Ratio (DSCR):
"Cash flow is king. It doesn’t matter what an appraiser says your asset is worth if the property can’t pay its own bills. DSCR tells you whether the deal can support its debt today—not based on some hypothetical exit value. If there’s not enough cushion between income and debt service, you’re one bad quarter away from a problem. We don’t do deals where we have to hope. Hope is not a strategy."
Debt Yield:
"Strip away all the noise—market cycles, cap rate compression, pro forma fairy tales—and you’re left with one question: how much cash flow does this asset generate relative to the loan? Debt yield tells you exactly that. It’s the lender’s cap rate if they have to foreclose tomorrow."
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