Internal Rate of Return (IRR)

IRR is the discount rate at which the net present value of all cash flows equals zero, representing the annualized effective compound return of an investment.

IRR CalculationMethod
Set NPV to zeroFind discount rate where NPV = 0
Include all cash flowsInitial investment, annual income, sale proceeds
Time-value adjustedAccounts for timing of returns
Iterative solutionRequires financial calculator or Excel
IRR BenchmarksTarget Range
Conservative core properties6% to 9%
Value-add opportunities10% to 15%
Development projects15% to 25%
Opportunistic high-risk20%+

Related Terms

Net Present Value (NPV)Equity MultipleDiscounted Cash Flow (DCF)Hurdle RateModified IRREquity MultipleTotal Return

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