Updated · Part of the CRE investment glossary
How the equity multiple works
Add up every dollar an investment pays back to its equity investors — operating distributions, refinance proceeds and sale proceeds — and divide by the equity they contributed. The result is a multiple of the money invested.
A multiple below 1.0x is a loss. Exactly 1.0x returns the capital with no profit. Anything above 1.0x is profit: 1.8x means $0.80 of profit on every dollar invested. Because it counts cash only, a multiple quoted before exit is either a projection or a partial, realized figure.
The formula
The calculation is the same for a single investor, a class or a whole deal:
Equity multiple = total cash distributions ÷ total equity invested
- Total cash distributions: everything paid to equity over the life of the deal, including the return of capital.
- Total equity invested: all contributions, including any later capital calls.
- Profit multiple: subtract 1.0x to see profit alone, e.g. 1.8x − 1.0x = 0.8x.
Worked example: same multiple, different holds
Two deals each take $1,000,000 of equity and each pay $50,000 a year. Deal A sells in year 3 and returns $1,650,000 at sale. Deal B holds for 10 years and returns $1,300,000 at sale. Both pay back $1,800,000 in total.
The multiples are identical. The IRRs are not, because Deal A returns the money seven years sooner. This is why an equity multiple on its own cannot tell you whether a deal was good.
| Deal A (3 years) | Deal B (10 years) | |
|---|---|---|
| Annual distributions | $50,000 × 3 = $150,000 | $50,000 × 10 = $500,000 |
| Sale proceeds to equity | $1,650,000 | $1,300,000 |
| Total distributions | $1,800,000 | $1,800,000 |
| Equity multiple | 1.80x | 1.80x |
| IRR | 22.45% | 7.16% |
Equity multiple vs IRR
The two answer different questions. The equity multiple says how much money came back. IRR says how fast, as an annual rate that weighs early cash more than late cash. A short deal can post a high IRR on a small multiple: $1,000,000 that returns $1,150,000 after one year is a 15% IRR but only 1.15x.
Many waterfalls use one or both as hurdles, and investors often screen offerings on both. When a projected multiple and a projected IRR disagree with each other, check the hold period and when the projection assumes cash arrives.
If all the cash comes back in one payment at the end, the two are linked directly: multiple = (1 + IRR) raised to the number of years. With interim distributions there is no shortcut; you need the dated cash flows to get from one to the other.
What to watch for
The number is simple; the inputs are where it goes wrong:
- Projected vs realized: a multiple in an offering is a projection, not a promise, and depends on the sale assumptions.
- Gross vs net: a deal-level multiple before fees and promote is higher than what limited partners receive.
- Missing capital calls: leaving later contributions out of the denominator inflates the multiple.
- Comparing across hold periods: a 2.0x over 10 years is not better than a 1.6x over 4 without looking at IRR.
- Mixing terms: equity multiple, MOIC and TVPI overlap, but MOIC and TVPI can include unrealized value. Check which one is quoted.
General information, not legal, tax or investment advice. Your operating agreement, offering documents, counsel and CPA govern your deal.