What does the lender's yield represent?

The lender's yield represents the lender's actual Internal Rate of Return (IRR). This metric takes into account not only the interest payments received over the life of the loan but also any fees or costs associated with underwriting the loan and the timing of those cash flows. By calculating the yield in this way, it provides a comprehensive view of the lender's profitability from the loan, allowing for a more accurate assessment of the investment's performance over time.

This concept is crucial in real estate finance because it helps lenders determine the attractiveness of a particular loan in comparison to other potential investments. Understanding the lender's yield allows for informed decision-making regarding pricing, risk premiums, and the overall capital allocation strategy.