March 16, 2023
Two $100,000 Investments, Both Generating a 15% IRR
The Equity Multiple reflects the amount of money an investor earns by the end of a deal and is expressed in terms relative to the original investment dollars. For example, if an investor puts $1 million into a property and eventually gets back $2 million, the multiple is 2x. Knowing the multiple on equity shows an investment’s true impact on wealth.
The biggest challenge with IRR is that it doesn’t quantify the amount of wealth the investment created. Generating a 17% IRR over five years sounds great, but not if it generates only a 1.3x multiple on invested equity. You can’t spend IRR.
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