Equity Multiple

Equity Multiple is a financial metric that is often used in the analysis of real estate investments. It provides a measure of the total return on investment, including both the initial capital invested and any profits from the investment.

The Equity Multiple is calculated by dividing the total cash received from an investment by the total equity invested. Here is the formula:

Equity Multiple = Total Cash Received / Total Equity Invested

For example, if an investor puts $1 million into a property (the total equity invested), and over the life of the investment, they receive $2.5 million back (the total cash received), the equity multiple would be 2.5.

An Equity Multiple greater than 1.0x indicates that the investor has made a profit on the investment. If the Equity Multiple is less than 1.0x, it means that the investor has lost money.

While the Equity Multiple is useful for understanding the total return, it doesn't take into account the time value of money, or how long it took to generate the return. Therefore, it's often used alongside other metrics such as the Internal Rate of Return (IRR), which does consider the timing of cash flows, when evaluating the performance of a real estate investment.