TIMBERMOSS CAPITAL
  • About
  • How It Works
    • Track Record
  • Tools
    • Gulf Coast Happy Hour
    • Book Download
  • Contact
  • Join

TIMBERMOSS
​CAPITAL
BLOG

Equity Multiples and What They Mean for Passive Investors

3/6/2020

 
Picture
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.

When it comes to passively investing in real estate syndications however, it’s an important phrase to know and understand.

What “Equity Multiple” Means for Investors Interested in Real Estate Syndications

As a new or seasoned real estate investor, it’s important to know what you’re getting yourself into. Part of that awareness comes from understanding the metrics presented in the investment summary prior to agreeing to the deal.
​
As passive investors review potential real estate syndication deals, the term “equity multiple” might seem confusing or even daunting if no one’s ever explained what exactly that means.

Alternately, our investors have shared with us that, after they grasp the concept of equity multiples, they are able to more confidently compare projected returns and make wiser investment decisions.

​Defining “Equity Multiple”

​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.

If a real estate syndication deal has an equity multiple of 2x and a projected hold time of 5 years, that means investors can expect to double their capital (original investment) in that 5 year period.

The equity multiple is the total of the cash flow distributions plus the returns after the sale of the asset.

​A Little Math to Help Demonstrate

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.

​How Passive Investors Might Look at Equity Multiples

In real estate syndication deals, it’s actually quite reasonable to expect to double your investment over the course of 5 years, but that doesn’t mean these deals are easily found. At Timbermoss Capital, we aim to present our investors with a 2x equity multiplier over a 5 year hold period.

Remember, the equity multiple, just like any other projected return or rate, is projected. That means it’s estimated using formulas, algorithms, and expectations of the market, and it’s not guaranteed. The actual returns may be below the projections shown on the investment summary, or they may far exceed what was thought possible.

All in all, investors should be reviewing the details of any presented deal with a discerning eye and ask any and all questions that come to mind until they feel comfortable with the information presented and confident that they are ready to move forward.

Now that you fully understand equity multiples, you can approach the next deal with confidence around that term.
Picture
Nathalie link
6/27/2022 01:12:55 pm

Great share, thanks for posting


Comments are closed.

    Justin Grimes

    Ally in generational wealth creation & protection.
    Proud husband & father.

    Archives

    October 2020
    September 2020
    August 2020
    July 2020
    June 2020
    May 2020
    April 2020
    March 2020
    February 2020
    January 2020
    December 2019
    November 2019
    October 2019
    September 2019

    Categories

    All
    Definitions
    Education
    Reits
    Returns

    RSS Feed

Subscribe

* indicates required
Home
About
How It Works
Webinars
Blog
Contact
​Join
​Terms & Policies
Picture
© COPYRIGHT 2020-2021. ALL RIGHTS RESERVED.
Timbermoss Capital does not make investment recommendations, and no communication through this website or in any other medium should be construed as such. Investment opportunities posted on this website are "private placements" of securities that are not publicly traded, are subject to holding period requirements, and are intended for investors who do not need a liquid investment. Private placement investments are NOT bank deposits (and thus NOT insured by the FDIC or by any other federal governmental agency), are NOT guaranteed by Timbermoss Capital and may lose value. Neither the Securities and Exchange Commission nor any federal or state securities commission or regulatory authority has recommended or approved any investment or the accuracy or completeness of any of the information or materials provided by or through the website. Investors must be able to afford the loss of their entire investment. Any financial projections or returns shown on the website are estimated predictions of performance only, are hypothetical, are not based on actual investment results and are not guarantees of future results. Estimated projections do not represent or guarantee the actual results of any transaction, and no representation is made that any transaction will, or is likely to, achieve results or profits similar to those shown. Any investment information contained herein has been secured from sources that Timbermoss Capital believes are reliable, but we make no representations or warranties as to the accuracy of such information and accept no liability therefor. Offers to sell, or the solicitations of offers to buy, any security can only be made through official offering documents that contain important information about risks, fees and expenses. Investors should conduct their own due diligence, not rely on the financial assumptions or estimates displayed on this website, and are encouraged to consult with a financial advisor, attorney, accountant, and any other professional that can help you to understand and assess the risks associated with any investment opportunity.
  • About
  • How It Works
    • Track Record
  • Tools
    • Gulf Coast Happy Hour
    • Book Download
  • Contact
  • Join