What is IRR?

What is IRR?

Internal Rate of Return (IRR) is a measure of performance commonly used in connection with investments in real estate. It shows a return earned by an investor over a defined period of time, calculated on the basis of cash flows. IRR differs from other metrics in that it accounts for the concept of the “time value of money," meaning it is calculated as the discount rate that makes the present value of all cash flows from an investment equal to zero. IRR can help an investor compare different investments based on their yield, while holding other variables constant.

IRR limitations

One of the issues with relying solely on IRR is that it can be misleading if used alone due to the assumption used to calculate it. Although a higher IRR might look good at face value, investors need to understand the factors and assumptions used to derive IRR. 

If you want to learn more about IRR, find the full article here: Understanding Internal Rate of Return (IRR) in Real Estate Investing.