How to Calculate Equity Dividend Rate

Calculate your Cash-on-Cash Return for Real Estate Investments

$

Total annual income minus operating expenses.

$

Total annual principal and interest payments.

$

Down payment, closing costs, and initial repairs.

Your Equity Dividend Rate

0.00%

Before-Tax Cash Flow: $0.00

Understanding the Equity Dividend Rate (EDR)

The Equity Dividend Rate, commonly known as the Cash-on-Cash Return, is a fundamental metric used by real estate investors to evaluate the performance of an income-producing property. Unlike the capitalization rate (Cap Rate), which assumes a property is purchased with cash, the EDR accounts for the impact of financing (leverage).

The EDR Formula

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

Key Components Defined

• Net Operating Income (NOI): The total annual income generated by the property (rent, parking, laundry) minus all operating expenses (taxes, insurance, maintenance, management fees).
• Annual Debt Service: The total amount of money paid toward the mortgage in a single year, including both principal and interest.
• Before-Tax Cash Flow (BTCF): This is the "pocket money" left over after all operating expenses and mortgage payments have been met, but before income taxes are paid.
• Initial Equity Investment: The total amount of actual cash you spent to acquire the property. This includes the down payment, loan origination fees, appraisal fees, closing costs, and any immediate renovations required to get the property rent-ready.

Practical Example

Imagine you purchase a commercial warehouse for $1,000,000. You put down $200,000 in cash and spend another $25,000 on closing costs and minor repairs, making your Initial Equity Investment $225,000.

The property generates $90,000 in Net Operating Income annually. Your annual mortgage payments (Debt Service) total $60,000.

1. Calculate BTCF: $90,000 (NOI) – $60,000 (Debt) = $30,000.
2. Calculate EDR: ($30,000 / $225,000) × 100 = 13.33%.

This means for every dollar of cash you invested, you are receiving a 13.33% annual return from the property's cash flow.

Why EDR Matters

The Equity Dividend Rate is often considered more practical than the Cap Rate for individual investors because it shows the actual yield on the specific cash they "locked up" in the deal. It allows investors to compare a real estate investment directly against other asset classes, such as dividend-paying stocks or high-yield bonds.

function calculateEDR() { var noi = parseFloat(document.getElementById('noi').value); var debtService = parseFloat(document.getElementById('debtService').value); var equity = parseFloat(document.getElementById('equityInvestment').value); var resultContainer = document.getElementById('resultContainer'); var edrResult = document.getElementById('edrResult'); var cashFlowResult = document.getElementById('cashFlowResult'); if (isNaN(noi) || isNaN(debtService) || isNaN(equity) || equity <= 0) { alert('Please enter valid positive numbers for all fields. Equity investment must be greater than zero.'); return; } var beforeTaxCashFlow = noi – debtService; var edr = (beforeTaxCashFlow / equity) * 100; // Update UI resultContainer.style.display = 'block'; edrResult.innerHTML = edr.toFixed(2) + '%'; cashFlowResult.innerHTML = 'Before-Tax Cash Flow: $' + beforeTaxCashFlow.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2}); // Scroll to result for mobile users resultContainer.scrollIntoView({ behavior: 'smooth', block: 'nearest' }); }