Equity Multiple
The equity multiple of an investment is a ratio used to help understand total cash return over the life of an investment. Equity multiple is one of the most commonly used return metrics in real estate and frequently cited when evaluating the total profit potential of an investment. In short
Equity multiple definition
The equity multiple is defined as a ratio of equity to total net profit plus the total equity invested divided by the total equity invested. Equity Multiple is one tool used to evaluate an investment opportunity, particularly investments with longer hold periods. It does not discount to present value and does not take risk or other variables into account and should not be looked at in isolation.
Equity Multiple = (Total Profit + Max. Equity Invested) / (Max. Equity Invested)
In practice, investors may use the term equity multiple and multiple on invested capital (MOIC) interchangeably. In real estate, equity multiple is generally the more common of the two. While debt or preferred equity investments could mathematically be analyzed in terms of equity multiple, cash-on-cash return or cash yield would typically be considered first. When evaluating a jv equity investment, you are more likely to see equity multiple and IRR as key return metrics.
EquityMultiple pursued attractive net equity multiples on investments within our Grow pillar.
Equity multiple and EquityMultiple… what’s in a name?
You may notice that “equity multiple” is, well, our brand name (removing the space in between words, to be specific). Why? The term equity multiple is part and parcel of our mission: to build investor wealth through real estate investments. In pursuing this mission, we also strive to make real estate investing easier, in part by providing investor education and demystifying real estate investing concepts. We hope this glossary and our Insights repository helps build your knowledge. Should you have any questions along the way, feel free to reach out to ir@equitymultiple.com or access the team via the chat tool at the bottom right-hand corner of your screen.