Understanding Liabilities to Equity Ratio in Multifamily Property

5 min read


A key measure of financial performance used by multifamily property investors is the liabilities-to-equity ratio. This ratio identifies the percentage of total assets that are financed by debt and the corresponding percentage of total assets that are financed by owner’s equity. In general, residential multifamily investment properties that have a higher liabilities-to-equity ratio will be leveraged more heavily than those with a lower ratio. For investors, this means that more of the returns generated by the investment are likely to come from loan interest payments rather than from profit resulting from changes in the property’s value. A high liabilities-to-equity ratio also means that investors have more risk of losses due to lack of equity cushion in the event of an economic downturn. It is important for investors to review the liabilities-to-equity ratio when considering multifamily property investments.