Not all real estate investments are created equal. Some deals generate steady, passive income and long-term appreciation, while others carry unnecessary risk.
If you want to build wealth through passive real estate investing, it’s crucial to know your goals as an investor, and how to analyze a deal and sponsor before investing.
At Egg Capital, we meticulously vet every investment opportunity and operator to ensure it meets strict risk-adjusted return criteria.
But how do we do it?
We analyze a core set of financial metrics to determine whether an investment is worth pursuing that we'll dig into during this article. We also use a proprietary 100+ point checklist to vet operators, built from our own experience investing six figures of our personal capital into similar opportunities and in addition to using our $1.3B of real estate transaction experience to personally underwrite every opportunity and sponsor.
In this guide, we’ll break down:
Operator Selection & Due Diligence – The most overlooked yet crucial part of investing.
Investor Goals & Strategy – Creating a diversified portfolio of alternative investments.
Internal Rate of Return (IRR) – Your annualized return over the investment period.
Equity Multiple (EM) – How much your money grows over time, or your total return.
Cash-on-Cash Return (CoC) – Your annual cash flow relative to your investment.
Debt Service Coverage Ratio (DSCR) – Ensuring the property can cover loan payments.
By understanding these key real estate metrics, you can confidently evaluate opportunities and invest like the ultra-wealthy.
Operator Selection: The #1 Factor in Real Estate Success
One of the biggest mistakes investors make is focusing only on numbers without evaluating who is running the deal.
At Egg Capital, we only invest with best-in-class operators using a rigorous due diligence process covering:
Operator Experience & Reputation
Have they been referred by a trusted industry source?
How long have they been in business?
Do they have any negative press or legal issues?
Track Record & Performance
How many deals have they successfully exited?
Have their past deals hit or exceeded projections?
What are their average IRRs and equity multiples across multiple deals?
Have they ever lost investor capital or issued a capital call?
Investor Relations & Transparency
Do they provide regular updates and financial reports?
Have they historically delivered K-1 tax documents on time?
How often do they communicate with investors?
Financial Strength & Risk Mitigation
Is the sponsor capitalized enough to save a deal if things go wrong?
How much equity are they personally bringing?
Is there a succession plan if a key executive leaves?
Market & Deal Quality
Is the property in a high-growth market?
What is the operator's experience in the market?
Does the deal structure align with our investment criteria?
And much more. Even the best deal can fail if managed by the wrong operator. That’s why operator selection is our #1 priority.
What Type of Investor Are You?
Before you even look at metrics, you need to clarify your investing goals.
Debt Funds provide fixed, reliable returns (8-10% annually) with low risk and higher liquidity making them ideal for investors looking for passive income and capital preservation. Since these investments are secured by real estate assets, they offer downside protection while ensuring steady monthly or quarterly distributions.
Multifamily Syndications deliver higher total returns (13-16% IRR, 2x equity multiple) through a combination of cash flow and long-term appreciation. These investments allow investors to participate in value-add strategies, tax benefits like depreciation, and capital growth through property appreciation.
By blending these two investment types, investors can balance risk and reward—using debt funds to generate consistent passive income while leveraging multifamily syndications to build long-term wealth through equity growth and appreciation. This approach creates a diversified, recession-resistant real estate portfolio that provides both stability and upside potential.
Financial Metrics
1. Internal Rate of Return (IRR): The Gold Standard for Measuring Returns
What is IRR?
The Internal Rate of Return (IRR) represents your annualized return, factoring in both:
Cash flow during the investment hold period
Profits from the property’s sale at exit
It measures how efficiently your money grows over time and accounts for the time value of money—meaning, returns received sooner are more valuable than those received later.
Example: IRR Calculation
Let’s say you invest $100,000 in a real estate syndication with a 5-year hold period.
Year 1-5: You receive $8,000/year in passive income.
Year 5: The property is sold, and you receive $140,000 back (initial investment + appreciation).
Total Cash Flows:
$8,000 x 5 years = $40,000 (passive cash flow)
$140,000 at exit (sale proceeds)
Total received = $180,000
Your IRR = ~16.4% (compounded over 5 years).
Why IRR Matters:
Accounts for the time value of money—earlier returns are worth more.
More accurate than a simple ROI calculation.
Industry standard for measuring performance in private real estate deals.
2. Equity Multiple (EM): How Much Your Money Grows
The Equity Multiple (EM) tells you how much total money you will make relative to your original investment.
Formula: Equity Multiple=(Total Distributions + Final Sale Proceeds)/Initial Investment
Using the same $100,000 investment:
$8,000 x 5 years = $40,000 (passive cash flow)
$160,000 at exit (sale proceeds)
You turned $100,000 into $200,000 (2x equity multiple).
Why EM Matters:
Gives a quick snapshot of total return potential.
Unlike IRR, it doesn’t account for time—just total profit.
Useful for comparing different deals (1.8x vs. 2.0x vs. 2.5x).
3. Cash-on-Cash Return (CoC): Measuring Annual Income
The Cash-on-Cash Return measures how much cash flow you receive each year relative to your investment.
Formula:
CoC=Annual Cash Flow/Initial Investment
You invest $100,000 and receive $8,000 per year in rental income.
CoC=$8,000/$100,000 = 8%
Why CoC Matters:
Helps investors evaluate passive income potential.
Used for cash flow-focused investments.
4. Debt Service Coverage Ratio (DSCR): Ensuring the Property Can Cover Debt
While leverage is a great way to amplify returns trough real estate, leverage must be used responsibly.
One way to measure responsible leverage is through the Debt Service Coverage Ratio (DSCR) which measures whether a property generates enough income to cover its loan payments.
Example: DSCR Calculation
Net Operating Income (NOI): $200,000/year
Annual Debt Payment: $150,000
DSCR=200,000/150,000=1.33DSCR = \frac{200,000}{150,000} = \mathbf{1.33}DSCR=150,000200,000=1.33
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Why DSCR Matters:
A DSCR above 1.25 is a typical bank requirement, which means the property generates $1.25 of income for every $1 of debt service.
A DSCR below 1.00 means the property doesn’t generate enough cash flow to cover debt.
Ready to Invest Like a Pro?
Understanding IRR, Equity Multiple, Cash-on-Cash Return, DSCR, Cap Rate, and Operator Selection gives you the tools to evaluate real estate deals like an expert.
At Egg Capital, we pre-vet every opportunity and only invest in deals that meet our strict return criteria.
Want to see our current opportunities?
If you have any questions, just leave a comment below or reach out!
Best,
Eric Fitzgerald & Steve Lyerly
Co-Founders, Egg Capital
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