If you’re evaluating a multi-family investment, there are a number of metrics and terms that you should get familiar with. One I want to focus on here is equity multiple. This is simple metric. It’s one of my favorites. It just means your total cash invested, and what your return is on that money. And the way I like to explain it to investors is, we’re shooting for an equity multiple of two on this project. It might be over five years, but if you give us $1.00, we want to give you back $2.00. An equity multiple of 1.5, if you invested $100,000, you’d get your $100,000 back and another $50,000. An equity multiple of three means $100,000 turns into $300,000. So you get your principle back, plus two more. It’s a real good simple metric to look at. It does not take into account the time the investment’s out. I mean, if somebody says, “Yeah, the equity multiple’s three,” that’s great, but it’s a ten year hold, I mean, I can return any amount of money if you give me a long enough time, right? That’s one of the things to consider. But equity multiple’s a quick metric to see, am I going to double my money on this deal? Or, is it a little less? Equity multiple just means your total return on your cash invested. And that’s from cashflow, from sale proceeds, everything that’s coming back to you is incorporated in that whole number. It assumes a sale.
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