IRR (Internal Rate of Return)

Category: finance

The annualized effective compounded return rate that makes the net present value of all cash flows equal to zero.

IRR is the "time-adjusted profit." It measures the total return over the entire holding period, accounting for rent collected *and* the profit made when the building is eventually sold. It is the ultimate benchmark for commercial real estate syndications.

Common Examples

• The private equity firm targets a 15% levered IRR over a five-year holding period for their value-add multifamily fund.
• A high IRR usually requires a successful, highly profitable exit sale at the end of the real estate investment cycle.