What is a good IRR for a real estate investment?

What counts as a good IRR depends on risk, leverage, and market conditions. Core stabilized assets might target 8–12% IRR, value-add deals 12–18%+, and opportunistic projects even higher. Always compare IRR to your cost of capital and to realistic alternatives with similar risk.

How is real estate IRR calculated?

Real estate IRR is the discount rate r that makes the sum of discounted cash flows equal to zero: NPV = Σ(Ct / (1 + r)^t) = 0, where Ct is the net cash flow in period t. Because there is no closed-form solution, numerical methods such as Newton–Raphson or bisection are used to approximate r.

Does IRR include the sale of the property?

Yes. For a complete real estate IRR, you must include the net sale proceeds (after selling costs and loan payoff) as a positive cash flow in the final period. Excluding the sale will understate the true return.

Can IRR be misleading in real estate?

IRR can be misleading if you compare deals with very different hold periods, if cash flows are highly irregular, or if you ignore equity multiple and risk. Very high IRRs on short-term projects may represent small absolute profits. Always review IRR together with equity multiple, NPV, and a clear view of assumptions.

Real Estate IRR Calculator – Internal Rate of Return for Property Investments

Q: What is IRR in real estate?

In real estate, the internal rate of return (IRR) is the annualized rate of return at which the net present value (NPV) of all cash flows from a property equals zero. It incorporates the timing and size of all cash inflows (rents, sale proceeds) and outflows (purchase price, capex, operating deficits).

How to use the Real Estate IRR Calculator

Choose the timeline (annual or monthly) and set the number of periods you want to model.
Enter cash flows for each period:
- Use a negative number for cash outflows (purchase price, capex, equity contributions).
- Use a positive number for inflows (net operating cash flow, sale proceeds).
Optionally enter a discount rate (your required return) to compute NPV.
The tool automatically updates IRR, equity multiple, and NPV as you type.

IRR formula for real estate investments

The internal rate of return (IRR) is the discount rate $ r $ that makes the net present value (NPV) of all cash flows equal to zero:

\[ \text{NPV} = \sum_{t=0}^{n} \frac{C_t}{(1 + r)^t} = 0 \] where:

$ C_t $ = net cash flow in period $ t $
$ n $ = total number of periods
$ r $ = internal rate of return

There is no closed-form solution for $ r $, so the calculator uses a numerical root-finding method (a robust bisection search) to find the rate that drives NPV to zero within a small tolerance.

Equity multiple

The equity multiple measures how many times your invested equity you get back:

\[ \text{Equity Multiple} = \frac{\sum \text{All Positive Cash Flows}}{\left|\sum \text{All Negative Cash Flows}\right|} \]

For example, if you invest \$100,000 and receive \$180,000 over the life of the deal, your equity multiple is 1.8×.

Example: Value-add apartment deal

The sample deal button loads a simple 5-year value-add scenario (annual periods):

Year 0: $-\$1{,}000{,}000$ purchase and closing costs
Years 1–4: \$80,000–\$110,000 annual net cash flow after debt service
Year 5: \$120,000 net cash flow + \$1,400,000 net sale proceeds

The calculator then computes the IRR and equity multiple for this cash-flow pattern. You can tweak the numbers to see how changes in rent growth, exit cap rate, or capex affect returns.

Interpreting real estate IRR

Compare IRR to your hurdle rate (required return) and to similar deals in the same risk bucket.
Look at both IRR and equity multiple – a very high IRR on a short flip might still mean a small absolute profit.
Be careful with aggressive assumptions about rent growth, vacancy, and exit pricing; IRR is only as good as the inputs.

FAQ

What is IRR in real estate?

In real estate, IRR is the annualized rate of return that sets the present value of all cash inflows and outflows equal to zero. It captures both the timing and magnitude of cash flows, including the eventual sale of the property.

What is a good IRR for a property investment?

It depends on the deal type and risk. As a rough guide:

Core / stabilized assets: 8–12% IRR
Value-add deals: 12–18% IRR
Opportunistic / development: 18%+ IRR

Always compare IRR to your cost of capital and to realistic alternatives with similar risk and liquidity.

Why can IRR be misleading?

IRR can be misleading when:

Two deals have very different hold periods.
Cash flows are non-conventional (multiple sign changes), which can produce multiple IRRs.
You ignore equity multiple and focus only on the headline IRR.

Use IRR together with NPV, equity multiple, and a clear understanding of the assumptions.

Does this calculator handle monthly cash flows?

Yes. Switch the timeline mode to Monthly. The IRR shown is still an annualized rate, assuming 12 periods per year.

Real Estate IRR Calculator

Investment Inputs

Results