How to Solve for Equity Dividend Rate

by Bryan Keythman ; Updated April 19, 2017
Equity dividend rate measures returns on investment properties, such as apartment buildings.

An equity dividend rate measures the annual cash flow an investment property generates before taxes as a percentage of the cash initially invested in the property. While an investor’s total investment in a property typically consists of cash and a mortgage, the equity dividend rate focuses only on the annual return on the cash portion of your investment. Equity dividend rate is also known as the cash-on-cash return. A higher equity dividend rate represents a greater return on your cash investment. You can calculate your equity dividend rate annually to monitor your returns.

Step 1

Add together the total rental income and the total other income you received from an investment property during the most recent year to calculate the property’s gross income. Other income includes money from laundry machines, parking fees and similar items for which tenants pay. For example, assume a property generated $250,000 in rental income and $10,000 in other income. Add $250,000 to $10,000 to get $260,000 in gross income.

Step 2

Subtract the property’s total operating expenses during the year from gross income to calculate net operating income, or NOI. Operating expenses include items such as maintenance, utilities, supplies, wages, salaries, insurance and property taxes. In this example, assume your property had $90,000 in operating expenses. Subtract $90,000 from $260,000 to get $170,000 in NOI.

Step 3

Subtract the property’s total debt service during the year from NOI to calculate its before-tax cash flow. Debt service includes all interest and principal payments you made toward the property’s mortgage. In this example, assume you paid $90,000 in total debt service during the year. Subtract $90,000 from $170,000 to get $80,000 in before-tax cash flow.

Step 4

Divide before-tax cash flow by the amount of cash you initially invested in the property. In this example, assume you initially invested $500,000 cash in the property. Divide $80,000 by $500,000 to get 0.16.

Step 5

Multiply your result by 100 to calculate your equity dividend rate as a percentage. In this example, multiply 0.16 by 100 to get a 16 percent equity dividend rate, which means you earned a 16 percent return on your $500,000 cash investment over the past year.

Warnings

  • The equity dividend rate measures the annual return on your cash investment before the effects of income taxes, which could reduce your returns.

References

Photo Credits

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general mills credit unionhow to protect credit card from scannerswithdraw money from 401k without penaltywhat are the requirements to work at mcdonaldsdisadvantageous synonymebtegde.comis a debit card checking or savingskmart com weekly adseviction process in kentuckysalvation army st louis pick upskip tracing websitesannual annuity formulaticker symbol for nikecivil judgement on credit reportfha seller contributiontalecris plasma donation compensationquit claim deed florida form pdfirs 1040a instructionspcu hospitalpurple heart donation pickupwestland property taxespatriot bond series eedyslexia grants for adultsdo i have a savings bond in my nameapr meaning credit cardrestricted stock cost basisdefine acute medicaleligible to file a 1040a or 1040ezincome tax deductions police officersrelease of liability form ca dmvstock market scrolling tickercan you check if a money order has been cashedland contracts toledo ohiocan you prepay a credit cardhow to find equity multiplierstudent loans filing taxeshow long does refinancing a house takefha credit score guidelinesgross pay and net pay formulanavajo nation scholarshipcan you write off gas on taxeswho cashes western union money ordersallegheny county property records searchpros and cons of progressive taxdonating plasma compensationis it possible to withdraw money from 401kwhat is the oasdi taxmacy's credit cardfinancial ratio industry standardsgreendot moneypak reloadseller paid closing costs fhais a 607 credit score goodsecond trust deed loanswhere can i sell blood plasma for moneyhow to calculate gross profit margin from income statementnotify irs of deathcema loan definitiondefine unrestricted net assetscashing lottery ticketsflorida child support direct depositvertical common size income statementair national guard retirement calculatorwhat does medi cal cover for visiongap insurance refund when car is paid offwifi credit card readercapex estimateirs levy on wages calculatorcan i put cash in a safety deposit boxhud homes for sale illinoiswhere is the cvv2 on a credit carddebt consolidation and credit scorehow to remove credit inquiries from equifaxsynonym billare closing cost tax deductible
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