An equity dividend rate, also known as cash-on-cash, is the annual rate investors expect to receive on their equity investment. For example, suppose I invest $10,000 and expect to receive $1,500 annually from an investment. The equity dividend rate may be calculated as: $1,500/$10,000 = .15 or 15%. There are a few different methods to estimate what a typical market participant expects to receive on their investment. One method is to extract that rate from comparable sales. If you know the financing involved and the overall capitalization rate, it is possible to extract an equity dividend rate from that sale. Simply type these variables into the highlighted cells in the spreadsheet below and, voila! You’ve just extracted your first equity dividend rate. Feel free to download this spreadsheet by clicking the Excel button below.
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[…] But there is a way to extract an equity dividend rate from the sales of similar properties if you have the actual or estimated overall capitalization rate for your comparable sales and market oriented financing terms on the respective sale date for each sale. Because the Band of Investments method for calculating an overall capitalization rate allocates the overall rate between the debt and equity components, extracting an equity dividend rate becomes a simple math problem. Here is an example. (For a downloadable spreadsheet click here.) […]
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Thank you for the spreadsheet and tutorial.
You are welcome, Dan.