Equity Multiples and What They Mean for Passive Investors

[Justin Goodin]

Any time a potential investor is reviewing real estate syndication investment opportunities, they’ll likely come across the term “equity multiple”. Even if they’ve purchased a primary home or a residential rental property before, it’s unlikely they’ve heard of equity multiples.


The initial amount invested into a deal is an investor’s capital. That capital equals the amount of equity an investor has in the passive investment. Thus, the term Equity Multiple simply means the amount your capital (or equity) will be multiplied by the end of the deal.

How about we explore an example deal with a 2x equity multiple?

The investment (capital, also referred to as equity) is $100,000 and this deal has a projected annual rate of return of 8% with a 5 year hold period. This means the investor may receive about $8,000 per year for 5 years.

In other words, over a 5 year period, the investor will have received a total of $40,000 in cash flow distributions. Then, when the asset is sold, investors receive their initial $100,000 back, plus another, say, $60,000 in profit from the sale.

When the $40,000 in cash flow distributions and the $60,000 from the sale are added up, that’s $100,000 in total returns. The investor began with $100,000 and, not only got that back, but also earned an additional $100,000 cash.

In this example, the investor has doubled their money, which is what it means to have an equity multiple of 2x.