In commercial multifamily real estate, there’s a language that is spoken when you are connecting with brokers, property managers and other investors in the profession. To avoid sounding like a novice, an investor must be fluent with the real estate terminology to be taken seriously. Let’s take a minute to breakdown one of those terms.
Equity Multiplier (EM) can be derived as the rate of return on the basis of the total net profit and the equity investments. You can calculate EM by adding the total net profit and the equity investment and dividing the total by the equity investment.
- For example, if the limited partners invested $3,000,000 into a 200-unit apartment community with a 5-year gross cash flow of $2,000,000 and total proceeds at sale of $6,000,000
- The EM is ($2,000,000 +$ 6,000,000) / $3,000,000 = 2.66.
By learning these concepts and terms, you’re separating yourself from the novice investor looking to be more active than passive. Here’s where you can learn more multifamily investing terms.