How to calculate equity dividend rate

What is the Equity Dividend Rate?

The Equity Dividend Rate (EDR), often referred to in real estate as the "cash-on-cash return," is a metric used to evaluate the profitability and return on investment for real estate investments. It is calculated by dividing the annual cash flow from a property by the total equity invested and then multiplying by 100 to get a percentage, where annual cash flow is the net income after subtracting all expenses from the rental income. This rate measures the annual return on the equity invested in the property, providing a clear picture of its profitability.

How to Calculate Equity Dividend Rate

Here are the steps to calculate the EDR/Cash-on-Cash Return:

  1. Determine the Annual Cash Flow: This is the net income generated by the property annually. Calculate it by subtracting all expenses (like management fees, maintenance, taxes, insurance, and mortgage payments) from the total annual rental income.
  2. Calculate the Total Equity Invested: This is the total amount of money you've invested in the property. It includes your down payment, closing costs, and any other initial investment costs.
  3. Calculate the Equity Dividend Rate: Divide the Annual Cash Flow by the Total Equity Invested. Then, multiply the result by 100 to convert it to a percentage:
Equity Dividend Rate = (Annual Cash Flow) / (Total Equity Invested) x 100%

For example, if your annual cash flow from a property is $12,000 and you initially invested $100,000 (as down payment and other costs), your equity dividend rate would be:

Equity Dividend Rate = (12,000 / 100,000) x 100% = 12%

This means you are earning a 12% return annually on your initial equity investment.

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