IRR Calculator
Calculate Internal Rate of Return for a real estate investment with annual cash flows and a sale at exit.
Enter as positive number (will be treated as outflow)
What is IRR?
Internal Rate of Return (IRR) is the discount rate that makes the Net Present Value (NPV) of all cash flows equal to zero. It represents the annualized effective compounded return rate.
IRR is considered the "holy grail" metric for real estate investors because it accounts for the time value of money and all cash flows including the final sale.
Typical IRR Targets:
- Core: 8-10% (low risk, stabilized)
- Core Plus: 10-14%
- Value-Add: 14-20%
- Opportunistic: 20%+ (high risk, development)
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Frequently Asked Questions
How is IRR different from ROI?
ROI measures total profit. IRR measures the *time value* of that profit. Getting $1M in 1 year is better than $1M in 10 years; IRR captures that difference.
Why is IRR higher if I sell sooner?
Because the time weighting is shorter. A quick flip often has a sky-high IRR but a lower multiple on equity compared to a long-term hold.
What is a "preferred return" vs IRR?
In syndications, investors often get a "pref" (e.g., 8%) paid first. The IRR is the total projected annualized return including that pref and the final sale profit.
Does IRR account for reinvestment risk?
No. MIRR (Modified IRR) is better for that. IRR assumes you can reinvest interim cash flows at the same high rate, which isnt always realistic.
Is a 15% IRR good for real estate?
Yes. For a value-add commercial deal, investors typically target a 13-18% IRR. For safer core assets, 7-10% is common.