What is multiple equity?

You’ll probably come across the word “equity multiple” when researching commercial real estate syndication investing alternatives. It’s a term you won’t come across when buying a personal residence or even when investing in rental properties. While real estate investing is a great method to diversify your portfolio, reduce risk, and provide consistent profits, investors must know how to evaluate similar investments effectively to get the most out of it. Commercial real estate, unlike equities and funds, is a private opportunity asset that may not always provide the same level of insight into qualitative aspects.

Two of the most effective methods to assess the predicted total profits of a commercial real estate syndication investment opportunity against the dollar invested are the equity multiple and the Internal Rate of Return. We’ll go over exactly what an equity multiple is, how to calculate one, and what it implies for you as a passive investor in the blog post below. Commercial real estate syndications, unlike other ventures, involve more technical vocabulary, a long list of (sometimes confusing) KPIs, and a completely separate cash flow approach. We’re in the trenches with you, and we can’t let you miss out on financial independence because you don’t grasp how equity multiples operate!

Market Space Capital - What is multiple equity

One of our investors told us that once she understood what an equity multiple was, she was able to compare anticipated returns across different investment options with greater confidence and make better investment decisions. So, here we are, ensuring that you have a reliable source of such data so that you, too, can make wonderful, well-informed investing selections.

What Is A Commercial Real Estate Equity Multiple?

The word “equity multiple” means precisely what it says. It’s the amount by which your capital, or equity, will be multiplied during the expected hold period. The equity multiple in commercial real estate syndications is calculated by dividing the total cash distributions received from an investment by the total equity invested.

It is, in essence, the amount of money that an investor can make from their initial investment. If your equity multiple is less than 1.0x, you’re getting back less money than you put in. An equity multiple greater than 1.0x, on the other hand, shows that you are getting more money back than you put in. So, if a real estate syndication deal has a 2x equity multiple over a predicted hold term of 5 years, you can anticipate to double your money in those 5 years.

In other terms: An equity multiple is a ratio that compares all of the cash distributions from an investment – including recurring cash flows as well as the return of the initial money invested – to the total equity invested in the venture. The equity multiple of a project is defined as the ratio of investment returns to the amount of capital invested in the project.

The equity multiple of an investment is analogous to the cash-on-cash return on a real estate investment. Unlike cash-on-cash return, which is typically given as a percentage on an annual basis, equity multiple is a ratio that is disclosed over the course of a company’s multi-year holding period of an investment.


Calculation of Equity Multiples

The equity multiple calculation considers both the overall cash flow distributions during the course of the project as well as the returns on the asset when it is sold. Let’s return to the deal with the 2x equity multiple as an example. Let’s imagine you’re willing to put $100,000 into this venture. You want to know how much money you could make compared to the amount of money you put in (equity).

Let’s say this investment has an expected annual return of 8%. That means you’d collect around $8,000 per year for the next five years. In other words, over the course of five years, you would get around $40,000 in cash flow distributions. When the asset is sold, you will receive your original $100,000 plus an additional $60,000 profit. Take the $40,000 from the cash flow distributions and add it to the $60,000 from the sale for a total return of $100,000. So, you began with $100,000 and ended up with $200,000?


The following is how you should calculate equity multiples:

Equity Multiple = Total Cash Distribution / Total Equity Invested

Similarly, if we use the investment returns from the previous example, it looks like this:

100,000 / (40,000 + 60,000) = 2

That’s what having a 2x equity multiple means. Your initial investment has grown by a factor of two. To put it another way, you’ve more than doubled your money.


When evaluating private investments, you shouldn’t rely solely on the equity multiple. 

The equity multiple compares total returns over the whole holding period to the capital you invested, with no consideration for time value or annual returns. This could indicate that your annual returns will fluctuate or that you will have to wait a long time for the investment’s absolute return potential to be realized. 

Do you recall how I mentioned the Internal Rate of Return earlier? If you desire steady cash distributions over time and want to account for the time value of money in your calculations, you should look into IRR in addition to the equity multiple as part of your due diligence. In addition to an equity multiple more than 1.5x, you’ll want to carefully examine the tax benefits, illiquid time, potential for cash calls, and other risks vs return aspects, particularly on your initial investment.


In preparation for your first investment in a commercial real estate syndication:

Having learned about equity multiples and what they represent for you as a passive real estate investor, how do you know how they fit in with the rest of the forecasts you see in the investment description for a potential real estate syndication deal?

Check out the Anatomy of an Investment Summary article for a step-by-step walkthrough of a mock investment transaction. In this section, you will get a realistic look at a hypothetical investment and all of the specifics surrounding it, such as the equity multiple against internal rate of return and other essential information you should be aware of before making your first real estate syndication investment.

Following your lesson on the equity multiple, why it is important to your investments, and how equity multiples are computed, what do you plan to do with your knowledge? You can contact us to guide you through to the next step.

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MarketSpace Capital, LLC is a Houston, Texas-based private equity real estate development firm focused on ground up developments and value-add investments throughout the United States.

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Disclaimer: *For sold properties, actual sales price is reported. For active investments, the Estimated Current Value is based on the Managing Member’s estimate of current value. Recent acquisitions are generally valued at the acquisition price. Values may be internally prepared. This web-page/website is for informational purposes only and is qualified in its entirety by reference to the Confidential Private Placement Memorandum (as modified or supplemented from time to time, the “Memorandum”) of any offering of MarketSpace Capital.