If you are new to apartment investing some of the terms used could be confusing. Here is a simple explanation to help you understand some of the terms used in our offerings.
The equity multiple is a calculation of cash flow distributions, return of initial capital, and final profits assessed when the asset is sold.
For example, say you were to invest $100,000 into the following deal.
Cash on cash = 8%
Hold period = 5 years
Equity multiple = 2x
Your projected cash on cash or annual return of 8% means you would get about $8,000 per year for 5 years totaling $40,000 in cash flow distributions during the hold period.
At the end of the hold period when the asset is sold you would get your original $100,000 back plus any profits, which in this scenario equals about $60,000.
To calculate your equity multiple, you would add the $40,000 of cash flow distributions, plus the $60,000 of profits at the sale, plus your initial investment of $100,000. All together you would have $200,000 once the deal comes to an end.
So, you invested $100,000 and earned $100,000 which means you doubled your money a.k.a. have an equity multiple of 2x.
Simplest terms: $100,000 x 2 = $200,000