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Cost of Equity in Real Estate

The cost of equity is usually more complex to determine than the cost of debt. Because the cost of equity is not a quoted percentage.

But it's possible to calculate as the percentage return that an equity holder requires. (a percentage of their investment on the profits earned).

The required return on equity is higher than the cost of debt because an equity investor's return is not contractual guaranteed like for example a loan.

Celtic house, Citânia de Briteiros - Portugal

A lender receives, interest payments and capital, over a specific amount of time in accordance with the loan agreement, and in case of insolvency, will receive monies due to them in preference to the equity holders.

Equity investors do no get the same guarantee so they will require an extra compensation for the increased risk in the investment.

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