When you’re a passive investor, you’ll often see a mix of acronyms and percentages in offering memorandums and investment decks. ROI, IRR, equity multiple, and even the confusing distinction between return on capital vs return of capital. They all sound important, but what do they actually mean for your money? And perhaps even more critical: which one should you pay the most attention to?
Let’s break it down in plain English.
Return on Capital vs Return of Capital: Why the Distinction Matters
The first concept to get clear on is the difference between return on capital and return of capital.
- Return of capital is your original investment coming back to you. If you invested $100,000 in a deal and later receive $20,000 as part of a refinance or distribution, that may not be “profit.” It could simply be a portion of your original investment being returned.
- Return on capital is your actual profit, the money earned on top of your original $100,000.
Don’t mistake principal repayment for profit. True returns are on your money, not just of your money.
ROI: The Straightforward Snapshot
Return on Investment (ROI) is one of the most basic multifamily investing metrics. It gives a quick snapshot of how your capital is performing, but it should always be considered in context.
- Example: You invest $100,000 and walk away five years later with $150,000. Your ROI is 50%.
The advantage of ROI is its clarity. It is easy to understand. The downside is that ROI ignores the time factor. Earning 50% over one year is very different than earning 50% over five years.
ROI is helpful, but it doesn’t tell the full story without factoring in time.
IRR: Timing Is Everything
Internal Rate of Return (IRR) factors in the timing of cash flows. In other words, it recognizes that $10,000 returned to you in Year 1 is more valuable than $10,000 returned in Year 5.
- If you prefer seeing distributions early and regularly, IRR highlights how much those cash flows accelerate your returns.
- If a deal backloads most of the profits at sale, IRR will adjust downward compared to ROI.
IRR is often the most useful of the multifamily investing metrics when you want to compare deals with different distribution schedules.
Equity Multiple: The Big Picture
Equity Multiple tells you how many times your money multiplies over the life of the deal. It is one of the clearest ways to benchmark total growth in multifamily investing.
- Example: A 2.0x equity multiple means your $100,000 investment turned into $200,000 over the course of the investment.
- Unlike ROI, it doesn’t directly express time, but it does give you the cleanest picture of total growth.
Equity multiple is the clearest way to measure total wealth creation over the life of an investment.
Which Metric Should You Trust Most?
The honest answer: it depends on your goals.
- If you want to compare two deals on pure total growth, look at Equity Multiple.
- If you care most about the efficiency of time and early distributions, focus on IRR.
- If you want a simple performance snapshot, ROI can give you a quick snapshot, but it should be considered alongside other benchmarks.
Above all, remember to ask whether you’re looking at return on capital or return of capital. That clarity alone can help you see through a lot of glossy marketing decks.
The Bottom Line for Passive Investors
Multifamily investing can seem filled with jargon, but at the heart of it, the math is straightforward. Knowing which metric to prioritize, and how to read between the lines, is one of the most empowering steps you can take as a passive investor. These metrics are not just numbers, they are benchmarks that help protect and grow your capital.
At Blue Lake Capital, we focus on delivering transparent, risk-adjusted returns that balance all three: ROI, IRR, and equity multiple. Because ultimately, your capital deserves more than just numbers on a page. It deserves thoughtful stewardship that compounds into lasting wealth.
Tip: Before committing to any deal, ask the sponsor to clarify: Are these distributions return on capital or return of capital? That single question could change the way you view your entire investment.
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About Ellie Perlman
Ellie Perlman is the founder and CEO of Blue Lake Capital, a woman owned multifamily real estate investment firm focused on partnering with family offices and accredited investors to build and preserve generational wealth. Since its founding in 2017, Blue Lake has successfully acquired and operated multifamily assets across high-growth U.S. markets, completing $1B+ in transactions.
At Blue Lake Capital, Ellie and her team work exclusively with family offices and accredited investors, offering carefully curated investment opportunities that emphasize long-term wealth creation, stability, and risk-adjusted returns. A defining aspect of Blue Lake’s investment strategy is its integration of advanced AI-driven analytics and data science into the entire lifecycle of acquisitions and asset management. By leveraging cutting-edge technology, the firm executes data-driven forecasting on market trends, asset performance, and tenant behavior, ensuring strategic decision-making and optimized returns.
In addition to leading Blue Lake Capital, Ellie is the original founder and host of "REady2Scale - Real Estate Investing" podcast, which provides insights into multifamily real estate, alternative investments, and finance.
Ellie began her career as a commercial real estate attorney, structuring and negotiating complex transactions for one of Israel’s leading development firms. She later transitioned into property management, overseeing over $100M in assets for Israel’s largest energy company.
Ellie holds a Master’s in Law from Bar-Ilan University in Israel and an MBA from MIT Sloan School of Management.
You can learn more about Blue Lake Capital and Ellie Perlman at www.bluelake-capital.com.
*The content provided on this website, including all downloadable resources, is for informational purposes only and should not be interpreted as financial advice. Furthermore, this material does not constitute an offer to sell or a solicitation of an offer to buy any securities.
