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Updated over 5 years ago on . Most recent reply
Question: Cash Flow Analysis
When doing a cash flow analysis for a multi-family, what does a free cash multiplier entail?
I understand basic Cash on Cash and Cap Rates, but I see Cash Multiplier and don’t quite understand what it means.
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#2 Land & New Construction Contributor
- Developer
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@Tej Patel free cashflow is not a metric you would typically use in real estate. It is a metric used in valuing companies.
Free cashflow is the cash left after all expenses including debt service so NOI-debt service = free cashflow/purchase price = ratio. To get a multiplier divide purchase price by free cashflow.
Again this ratio does not do you any good in RE. The free cashflow is good to know in terms of returning a pref to investors but that shows up in a cashflows section of the proforma