What exactly is the Equity Multiple?
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A non-time-weighted, cumulative return measure, represented as a decimal (for example, 2.0x)
Return on Investment + 100%
By the end of this episode you’ll learn:
What is the Equity Multiple?
How is it calculated?
How is it applied?
Have a few minutes:
Measuring investment performance, actual or estimated, is a big part of commercial real estate. One way to estimate performance is to calculate how much money is earned by every dollar invested over a certain period of time. That is the Equity Multiple.
For example, you have an opportunity to invest $200,000. If over the next 5 years you can collect a total of $500,000, inclusive of selling the property, you will earn 2.5x ($500K / $200K) on your investment.
Some investors will set a goal of earning a specific amount of money over a certain number of years. Equity Multiple is a popular return metric because it measures the growth of money invested in $’s versus as a percentage.
While not without its shortcomings, Equity Multiple is a useful measure when used alongside other return metrics to get a complete picture of investment performance.
In this episode, we’ll define this measure of return and illustrate how it’s calculated and applied. Through this process we will identify why it is favored and what it is lacking.