Open three different syndication offering decks and you’ll likely see three different headline metrics — one sponsor leads with IRR, another with equity multiple, a third with average cash-on-cash. This isn’t a coincidence. Sponsors tend to lead with whichever number flatters their specific deal structure. Understanding what each metric actually measures — and what it conveniently ignores — is the difference between comparing deals accurately and getting sold a story.
Cash-on-Cash Return: What You’re Actually Collecting Each Year
Cash-on-cash return measures annual cash distributions as a percentage of capital invested. If you invest $100,000 and receive $8,000 in distributions that year, your cash-on-cash return is 8%.
What it captures well: near-term income for investors who need distributions to live on or reinvest elsewhere. What it ignores entirely: appreciation, the eventual sale proceeds, and the time value of money across the full hold period. A deal with modest cash-on-cash returns in years one and two can still deliver an excellent total return if the exit is strong — cash-on-cash alone won’t tell you that.
Equity Multiple: Total Dollars Back, No Timing Adjustment
Equity multiple measures total dollars returned (distributions plus sale proceeds) divided by total dollars invested. A 2.0x equity multiple means every dollar invested returned two dollars total, across the life of the deal.
This metric is intuitive and hard to manipulate — it’s just total cash in versus total cash out. Its blind spot: it ignores time entirely. A 2.0x multiple over 3 years is a dramatically better outcome than a 2.0x multiple over 10 years, but the equity multiple alone doesn’t tell you which one you’re looking at. Never evaluate equity multiple without checking the projected hold period next to it.
IRR: The Metric That Accounts for Time — and the One Easiest to Inflate
Internal Rate of Return (IRR) is the annualized rate of return that accounts for the timing of every cash flow, not just the total amount. It’s the most complete single metric — and also the one most sensitive to underwriting assumptions, according to institutional real estate research from NCREIF, which notes that IRR sensitivity to exit-cap-rate assumptions is one of the most common sources of projection variance in private real estate (ncreif.org).
This is where sponsors have the most room to make a deal look better than it will likely perform. Two ways IRR gets inflated in offering materials:
- Aggressive exit cap rate assumptions — projecting the property will sell at a lower cap rate (higher valuation) than the market currently supports
- Early, large distributions — because IRR is time-weighted, cash returned in year one is worth more to the calculation than the same dollar returned in year five, so structuring early distributions (even small ones) can lift a headline IRR without changing the total return at all
How to Actually Compare Deals Using All Three
Don’t evaluate any one metric in isolation. A useful due diligence sequence:
- Check the equity multiple first — it’s the hardest number to manipulate and tells you the real total return.
- Check the hold period next to it — a 1.8x multiple over 3 years often beats a 2.5x multiple over 8 years on an annualized basis.
- Check cash-on-cash if you need income during the hold — this tells you what you’ll actually see in your account year to year, separate from paper appreciation.
- Check IRR last, and ask what exit cap rate it assumes — compare that assumed exit cap rate to current market cap rates in the same submarket. If the sponsor is assuming meaningful cap rate compression to hit their headline IRR, that’s leverage on an assumption, not a guarantee.
The One Question That Cuts Through All of It
Ask every sponsor: “What’s the exit cap rate assumption behind this IRR, and what’s the current market cap rate for comparable assets in this submarket today?” A sponsor who can answer immediately, with a source, has underwritten conservatively. A sponsor who can’t is asking you to trust a number they haven’t stress-tested themselves.
Return metrics are tools, not verdicts — the goal isn’t to find the “best” number, it’s to understand exactly what each one is telling you and what it’s leaving out. Want to see how we underwrite and report all three across our own deals? Review our current track record or schedule a call and we’ll walk through the actual assumptions behind our numbers.