2) Rate of Return Example – Non-business property that produces a 6% rate of return

The customer owns a mobile home that he rents out and a small vacant lot that he rents out for event parking. The mobile home has an equity value of $6,100 and produces net annual rental income of $1,000. The vacant lot has an equity value of $4,000 and produces net annual rental income of $120. Each property’s rate of return is calculated separately, as shown below:

Mobile Home – Net annual income of $1,000 divided by $6,100 = 16.3% rate of return. Since the mobile home produces more than a 6% return, $6,000 of its equity value is excluded. The remaining $100 is counted.

Vacant Lot – Net annual income of $120 divided by $4,000 = 3% rate of return. Since the vacant lot produces less than a 6% return, its equity value of $4,000 is counted.