Equity Dividend Rate Calculator

Equity Dividend Rate Calculator

$

Annual income minus operating expenses.

$

Total annual mortgage/loan payments.

$

Cash down payment + closing costs.

Equity Dividend Rate: 0.00%

Before-Tax Cash Flow (BTCF): $0.00

Understanding the Equity Dividend Rate

The Equity Dividend Rate (EDR), frequently referred to as the Cash-on-Cash Return, is a fundamental metric in real estate investing. Unlike internal rate of return (IRR) or cap rate, the EDR specifically measures the return on the actual cash invested, rather than the total value of the property. It answers the investor's primary question: "What is the annual cash return on the money I put into this deal?"

The Formula

The calculation for the Equity Dividend Rate requires determining the property's cash flow after debt obligations but before income taxes.

EDR = (Before-Tax Cash Flow / Initial Equity Investment) × 100

Where:

• Before-Tax Cash Flow (BTCF): This is calculated as the Net Operating Income (NOI) minus the Annual Debt Service (ADS).
• Initial Equity Investment: This represents the total cash capital required to close the deal, including the down payment and all closing costs.

Example Calculation

Consider a commercial property investment with the following financials:

• Net Operating Income (NOI): $50,000
• Annual Debt Service (ADS): $30,000 (Mortgage payments)
• Initial Equity: $150,000 (Down payment + costs)

First, we calculate the BTCF:

$50,000 (NOI) – $30,000 (ADS) = $20,000 (BTCF)

Next, we divide the BTCF by the initial equity to find the rate:

($20,000 / $150,000) = 0.1333… = 13.33%

This means for every dollar invested, the investor receives roughly 13 cents in cash flow annually.

Why Use the Equity Dividend Rate?

The EDR is particularly useful because it accounts for leverage (financing). A property might have a low Cap Rate (return on total value), but if the debt service is low enough, the Equity Dividend Rate could be high, indicating a lucrative opportunity for the equity holder. Conversely, high debt service can erode the BTCF, resulting in a low or negative EDR.

Limitations

While powerful, the EDR is a "snapshot" metric. It looks at the cash flow for a single year (usually the first year). It does not account for:

• Future property appreciation.
• Tax benefits (depreciation).
• Changes in rent or expenses over time.
• Principal paydown on the loan.

function calculateEDR() { // Get inputs by ID var noiInput = document.getElementById('input_noi'); var adsInput = document.getElementById('input_ads'); var equityInput = document.getElementById('input_equity'); var resultContainer = document.getElementById('edr_result_container'); var resultRate = document.getElementById('result_rate'); var resultBtcf = document.getElementById('result_btcf'); // Parse values var noi = parseFloat(noiInput.value); var ads = parseFloat(adsInput.value); var equity = parseFloat(equityInput.value); // Validation logic if (isNaN(noi) || isNaN(ads) || isNaN(equity)) { alert("Please enter valid numeric values for all fields."); return; } if (equity = 0) { resultRate.style.color = "#28a745"; // Green } else { resultRate.style.color = "#dc3545"; // Red } }