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

The customer owns an apartment complex with multiple units on the same property. The customer does not actively manage or maintain the property. The apartment complex has a property value of $200,000.

The customer receives $30,000 per year from the apartments. The customer has the following expenses related to the apartment: $2,500 a year in property taxes, and $2,500 a year for insurance.

After expenses are accounted for, the customer’s net income from the apartments is $25,000. Net annual income of $25,000 divided by $200,000 = 12.5% rate of return. The equity value of the property is reduced by $6,000.