In real estate, equity multiples are used primarily as a measure of the total return paid to an investor. The equity multiple is the total cash distributions received from an investment, divided by the total equity invested.
Equity multiple = total gain or loss / capital contributed.
An equity multiple less than 1.0x means you are getting back less cash than you invested. An equity multiple greater than 1.0x means you are getting back more cash than you invested. For instance, an equity multiple of 2.50x means that for every $1 invested into a commercial real estate (CRE) project, an investor could be expected to get back $2.50.
Note: Equity multiples are static. For example, if an investor puts in $100,000 and gets $200,000 back in total return, that is a 2x equity multiple. It has no bearing on how long it took to earn that return. This is where the equity multiple differs from the Internal Rate of Return (IRR): it does not take into account the length of the investment period or the time value of money.
For more information on equity multiples and their relationship to IRR, refer to this article: The Yin and Yang of Equity Multiples and IRR. For more information related to IRR: Understanding IRR.