Agents Building Cashflow

EP 144: Maximize Returns: Mastering Equity Multiple in Real Estate

• Randal McLeaird

Share episode

In this episode of Agents Building Cashflow, Randal introduces us to the concept of the equity multiple, a key metric for evaluating real estate investments. Randal explains the difference between equity multiple and other financial metrics like IRR (Internal Rate of Return) and AAR (Average Annual Return), emphasizing its utility in assessing the total cash return on an investment over its duration. 

He illustrates this by explaining that an equity multiple of two means that an investment doubles the money put in, ideally over a five-year term. If you’re a real estate agent aiming to translate your commissions into sustainable cash flow, Randal's insights provide essential knowledge. To learn more and delve deeper into the nuances of real estate investment metrics, tune in to the full episode.


Key takeaways to listen to:

  • Understanding equity multiples to maximize your investment returns.
  • Differentiating between IRR and equity multiple for smarter decisions.
  • Realizing the importance of a greater than one equity multiple.

Resources mentioned in this episode:

If you’re interested in learning more about investment opportunities and multifamily funds, just contact Randal at podcast@agentsbuildingcashflow.com. 

To connect with Randal and learn more about passive investing, visit www.ridgelineig.com and follow our social media pages below!

To connect with Randal and learn more about passive investing, visit www.ridgelineig.com and follow our social media pages below!

[00:00:00] Intro: If you're a real estate agent earning 200, 000 a year and you want to grow your passive income, this show is for you. Learn secrets other agents use and hear from experts in our field who will guide you on your journey to investing in assets like apartment communities. So you can take your commissions and turn them into cashflow.

[00:00:20] Intro: Here's your host, Randall. Let's dive 

[00:00:22] Randal McLeaird: in. Okay, we're back. Another quick hitter Friday episode. It's good to have you guys here. I'm going to talk today about equity multiple. Again, we talked about IRR, AAR, and now we're talking about equity multiple. And again, it's just usually when you're going to get an offering, you're going to see at least these three things.

[00:00:39] Randal McLeaird: It may be just, maybe just one AAR. I don't know. It depends on the sponsor and who's putting the investment together. And what you're used to seeing, if you're investing with them all the time, but on our deals, we put all three out there just because we want you to see it quickly and be able to know what they are.

[00:00:52] Randal McLeaird: So in an, in investments, equity, multiple is comparable to the properties, cash on cash return. The difference is that the cash on cash returns normally are, [00:01:00] they're presented as a percentage on an annual basis. The equity multiple it's provided as a ratio throughout the course of investments, multi year holding term, right?

[00:01:09] Randal McLeaird: So a two X multiple means like throughout the whole time. You buy your one, you exit near five, a two X multiple. If you invested a hundred thousand dollars, it means you got 200, 000 back two times the money that you invested. So you want to see an equity multiple greater than one that is a given, right?

[00:01:27] Randal McLeaird: So the higher over one it is. So one to one ratio. I invest a hundred thousand dollars, I got a hundred thousand dollars back. That means you made no return and you probably lost money because of inflation and just not having investment return you at least 4 percent or something like that. So when you're looking at a quick memorandum or you see something and you see an equity multiple, take a look at it and then dig deeper and see how long of a period of time that is right.

[00:01:49] Randal McLeaird: Cause it's not all encompassing. So let's go over some of the other things with equity multiple real fast. So a couple of weeks ago we talked about IRR, right? And so just to give you an example, the major difference between IRR and the equity [00:02:00] multiple is that they measure two different things. And that's why it's important that you understand that the IRR measures the percentage rate earned on each dollar invested for a period in which it's invested, right?

[00:02:11] Randal McLeaird: The equity multiple measures how much cash an investor is going to get back from a deal. And so knowing the difference in those two things, and you take both of those, you look at both of them, then it will allow you to make better investment decisions because you understand both of those. So again, quick hitter. If this caused more questions than answers, I apologize, but feel free to reach out to me, podcast@agentsbuildingcashflow.com. Happy to chat with you about it and dive a little bit deeper into the subject. If you have any questions, you can ping me there. Or again, if you're on any of the platforms, if you're on YouTube, please leave comments and we will be sure to read those and get back to you as soon as we can.

[00:02:47] Randal McLeaird: We'll catch you guys on the next episode. Did you know that 80 percent of the agents we speak with got into real estate in order to gain passive income so they could obtain financial freedom and become work optional? If you want to stay up to date, the best way is to make sure [00:03:00] you're subscribed. So if you haven't done that, go ahead and do it now.

[00:03:02] Randal McLeaird: We'll catch you on the next episode.

People on this episode

Head Shot

Randal McLeaird

Host