How to calculate an equity multiple in real estate

Equity Multiple Calculation

The equity multiple is a metric used in real estate investment to measure the return on investment, indicating how much money an investor will make on their investment relative to the amount invested. It is calculated by dividing the total cash distributions received by the investor by the total equity invested.

Here's the formula:

Equity Multiple = Total Cash Received by Investor / Total Equity Invested

Total Cash Distributions Received by the Investor includes all cash flows from the investment, such as operating income, refinancing proceeds, and sale proceeds at the end of the investment period.

Total Equity Invested is the initial amount of money the investor used to fund the investment, excluding any debt financing.

Equity Multiple Calculation Example

If an investor puts $100,000 into a real estate project and over the course of the investment, they receive $200,000 back in total (including their initial investment, rental income, and the proceeds from the sale of the property), the equity multiple would be calculated as follows:

Equity Multiple = ($200,000 / $100,000) = 2.0

This means the investor has doubled their initial investment, receiving twice the amount of money they initially put in. An equity multiple of 2.0 indicates a total return of 100% over the investment period.

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