Internal Rate of Return (IRR)

IRR determines the annualized yield of an investment property over its holding life, accounting for time value of money.

Formula

NPV = Sum [ CashFlow_t / (1 + IRR)^t ] = 0

*Note: IRR is the discount rate that makes the Net Present Value (NPV) of all cash flows (purchase, operations, exit) equal to zero.*

What this tells you

IRR reflects overall return efficiency by factoring in both yearly operational cash flow and final sale net proceeds, adjusted for when those cash flows occur.

How to improve it

• Accelerate Rehab Phase: Decrease the amount of time capital sits idle without rent.
• Maximize Exit Valuations: Sell at peak market valuations or complete value-add renovations to demand premium sale pricing.