At Metonic, we measure future projections and our properties’ success in financial measurements. Our team strategically lays out the monetary plan for 5-15 years (depending on the hold period) in the underwriting of each property. The highly intensive underwriting summary generates projected investment returns, such as equity multiple, average annual cash yield, and cap rate. These terms may get confusing if you’re not in the finance world. This blog will define these terms and discuss how they’re evaluated.
Equity Multiple = Total Distribution / Total Invested Capital
Equity multiple is best described as the return you get from your initial investment. Metonic’s average equity multiple is 2.9x, meaning if you invest $100,000 in a multifamily property with a 10-year hold period, you will get approximately $290,000 distributed over ten years.
Average Annual Cash Yield = Annual Net Cash Flow / Invested Equity
The average annual cash yield is all operating income from a property during any yearly period, including refinance proceeds returned to investors. Metonic’s average annual cash yield returned to investors is 14%. This means an investor will receive approximately 14% of the initial investment on any given year during the hold period. Cash return is not always linear; some years may be higher than others, but 14% represents the average.
Cap Rate = Property’s Annual Net Operating Income / Purchase Price
A property’s cap rate is the percentage of return on investment after purchase. For example, if a property were purchased at $5 million and generated $375,000 of net operating income a year (NOI), its cap rate would be 7.5%.
Though these terms may get complicated, they’re essential in providing our partners with expected returns on our properties. If you have any questions regarding returns or the investment process, please visit our website or contact us at info@metonic.net.