Investors new to real estate often ask about the metrics they should know for evaluating their deals. While some firms might value specific metrics over others, investment real estate provides a standardized way to assess and compare an investment’s financial behavior, associated risks, and potential returns through quantitative data.
In multifamily real estate, these performance predictors enable data-driven decision-making and objectivity when measuring a property’s profitability rather than relying on intuition, anecdotal, or qualitative information.
Let’s review five of the metrics investors use in multifamily real estate.
FAIR MARKET VALUE (FMV)
Fair market value (FMV) refers to the price a property would sell for on the open market. It can be estimated by reviewing comps (neighborhood comparisons or market comparables) within the property’s community. For income-generating properties such as multifamily, FMV is calculated by dividing the property’s NOI by its cap rate. Appraisers are typically hired to determine the FMV using location, age, renovations/maintenance, and size. [1]
CAPITALIZATION RATE (CAP RATE)
The capitalization rate (cap rate) is a standard metric to evaluate the return potential of income-producing properties. It is calculated by dividing a property’s net operating income (NOI) by its market value (or purchase price) and expressed as a percentage (x100). The calculation is NOI divided by cap rate = estimated value to determine Fair Market Value.
CASH-ON-CASH RETURN
This metric is a rate of return that measures the annual pre-tax cash flow generated relative to the cash invested in a property. Also referred to as a cash-on-cash yield, it is calculated by dividing the annual net cash flow (after debt service) by the equity invested. This metric is beneficial for comparing investment opportunities that use financing since it reflects the return on the investor’s out-of-pocket cash, not the entire property value.
INTERNAL RATE OF RETURN (IRR)
The internal rate of return (IRR) is a critical metric in multifamily real estate that measures the lifetime profitability of an investment product and is expressed as a percentage. IRR is the discount rate that makes a project’s net present value (NPV) zero. It includes cash flow during the holding period and determines the potential rate of return. The exact IRR formula is complex and is often calculated using financial software or Excel. Said another way, it is your return of equity and return on equity with a time value of money (TVM) component. So, a dollar today is worth more than five years from now. [1][2]
EQUITY MULTIPLE
Equity multiple (EMx) in commercial real estate is a financial metric that compares the total cash an investor receives relative to the total amount of capital they invested. It is calculated by dividing the cash flow distributed during the holding period (including distributions and profits from a sale) by the total equity invested. So, if you invest $400,000 in a property and receive $100,000 in cash flow each year for five years, then turn around and sell the property for $1 million, your total cash would be $1.5 million. Divide 1.5 million by $400,000, and you get the equity multiple, which is 3.75x. In other words, you earned $3.75 for every dollar you invested. [1]
While these are not all the metrics investors use in their multifamily real estate deals, they are a pathway to understanding how to calculate returns and determine market value. Click here to continue reading part two of “What metrics do multifamily investors use?”
WORK WITH BAM CAPITAL FOR MULTIFAMILY REAL ESTATE INVESTING
BAM Capital is a vertically integrated owner/operator that partners with accredited investors who want to enjoy passive income and all the other benefits of multifamily private placement. As the private equity arm of The BAM Companies, BAM Capital has been focusing on buying the most profitable assets and staying disciplined in its investment thesis. BAM Capital’s investment strategy aims to create forced appreciation while mitigating investor risk. To date, the brand has successfully managed over $1.7 billion in assets across ~9,000 apartment units.
Remember that no investment is risk-free. Before making financial decisions, consult your investment advisor and schedule a call with a BAM Capital investment team member.
Disclaimer: All investments carry risk, including potential loss of capital. This content is for informational purposes only and is not financial, legal, or investment advice, nor an offer or solicitation to buy or sell any security. Consult an independent advisor for personalized guidance and contact BAM Capital for details on current offerings. BAM Capital and its representatives are not fiduciaries or investment advisors. The information provided is general and may not reflect individual financial goals. Any financial terms, projections, or forward-looking statements contained herein are hypothetical in nature and should not be interpreted as guarantees of future performance or safety. Such statements reflect Bam Capital’s opinion and are subject to market fluctuations, economic conditions, and investment risks. Past performance does not predict future results. BAM Capital and its affiliates do not guarantee the accuracy or completeness of this information. Bam Capital offers investment opportunities under Rule 506(c) of Regulation D exclusively for accredited investors as defined by the SEC. Verification of accredited investor status is required prior to participating in any investment.
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SOURCES:
[1]: BAM Capital. (2025). “A-Z: Essential terms defined in multifamily real estate investing.” https://bamcapital.com/essential-terms-defined-in-multifamily-real-estate-investing/
[2]: BAM Capital. (2024). “Multifamily Vocab.” YouTube Playlist. https://www.youtube.com/playlist?list=PLmBQi1cTgtJHgAJnmJZgCeE2AtZl3g2dI
