📌 3 Common Multifamily Metrics Explained

4 Replies

🗣 You will hear many terms thrown around when evaluating different #realestate syndications (group investments).

Here are 3 commonly used terms that describe the returns📈 of a real estate syndication.


✅Cash-on-cash

Cash-on-cash (CoC) return is a measure of the performance of a real estate investment. This number represents the relationship between the cash you invest (as opposed to the total value of the property, some of which may be financed) and its cash flow.

📌Example: You invest $100K into a syndication. You receive $10K annually in distributions. You are making an annual 10% cash on cash return.

Generally, you can expect to see an average CoC of 8% - 10% in a real estate syndication.


IRR

The IRR (Internal Rate of Return) takes into account the time value of money (i.e., $100 received today is worth more than $100 received in 5 years). Simply put, it is the rate at which a real estate investment grows or diminishes.

📌You can expect to see an IRR of at least 14% when evaluating real estate syndications.


✅Equity Multiple

An equity multiple represents the total cash distributions received from an investment in proportion to the total equity invested. It’s the amount that your capital, or your equity, will be multiplied over the course of the projected hold time.

📌Example: Assume an equity multiple of 2.2x. This implies that for every $1 invested, you receive $2.20 in return (over the life of the investment).


What other metrics are you using when evaluating multifamily deals? 

Great stuff! We look at all of these as well in addition to "Average Annual Return" which is your average cash-on-cash as well as your sale profit returns. For example, a deal we are chasing is producing an average cash-on-cash of 9.11% over a 5 year hold but if you look at the AAR or "Average Annual Return" which accounts for sales profit it is an annual return of 15.78%. We are very upfront with our investors to explain the difference and not to confuse them with the "AAR" being their "CoC".

We also look at "Total Return" (Cash Flow + Sales Profits) but this number doesn't make me all happy and bubbly inside like the other 4 do. Good post!