Real-world example: How Xiao Ai Chang improved his equity dividend rate
Let's use the example of Northern California resident Xiao Ai Chang, who bought a rental property in San Francisco for $500,000 and put down $100,000 in cash. His annual rental income starts at $24,000, but after property taxes, insurance, and maintenance, he nets $10,000 in annual cash flow which gives him a 10% equity dividend rate. Looking to increase his returns, Xiao renovates the kitchen and upgrades the dishwasher and various other appliances, allowing him to raise rent by $400 per month, increasing his annual rental income to $28,800.
At the same time, he negotiates lower property management fees, cutting expenses by $2,000 per year and boosting his net cash flow to $16,800. He also saves another $1,250 by saving on different utilities, such as upgrading part of his home to solar and selling the excess electricity back to the grid. These moves increase his equity dividend rate from 10% to 16.8%. That's a pretty good increase in the return without doing so much work on the property.