Internal rate of return (IRR) calculator.
IRR is the return that accounts for the timing of every dollar — the metric most investors actually decide on. Enter your equity, annual cash flow, hold period, and net sale proceeds to solve for it.
Why investors decide on IRR
Internal rate of return is the metric most investors ultimately decide on because it accounts for the timing of every dollar. It blends the equity you invest, the cash flow you collect each year, and the proceeds when you sell into a single annualized, time-weighted return. Getting money back sooner raises IRR; a great exit far in the future is discounted more heavily.
Example. Invest $850,000, collect about $47,000 a year, and sell after five years for $1,100,000 net, and the IRR lands near 18% even though the year-to-year cash-on-cash was only about 5.5%. The exit — appreciation plus loan paydown — does the heavy lifting. Always read IRR next to the equity multiple so a quick, small win doesn’t masquerade as a great deal.
Frequently asked questions
IRR is a function of your exit assumption.
Change the exit cap rate by fifty basis points and the answer moves more than any operating line. Send me the deal and I'll test it against what actually traded.
Estimates are for planning only and use simplified assumptions — not tax, legal, or investment advice. Verify with your lender, CPA, and a full broker analysis before acting.
IRR is mostly your exit assumption
Internal rate of return rewards money returned early and punishes money returned late, which makes it the right measure for comparing deals of different lengths and a misleading one for judging a single deal in isolation.
The dominant input is almost always the exit. Move the exit cap rate by fifty basis points and the IRR moves further than any change to rent growth, expense ratio or financing. Underwriting an exit at the same cap rate you bought at is not neutral — it is an assumption that the market is unchanged years from now.
Where IRR misleads
It assumes interim cash flows are reinvested at the same rate, which rarely happens. It can be flattered by a quick partial return of capital even when the total profit is small. And it says nothing about scale: a 30% IRR on $80,000 of profit and an 18% IRR on $900,000 are not comparable decisions.
Read it alongside equity multiple, which ignores time entirely. When the two disagree, the disagreement is the information — one deal is fast and small, the other slow and large, and which you want depends on what else you could do with the money.
Common questions
What is a good IRR for commercial real estate?
It depends on risk, leverage and hold period, and it is not comparable across strategies. A stabilised net-leased building and a development deal should not be judged against the same target. Test the number against a range of exit assumptions rather than a single one.
Why does IRR change so much with the exit cap rate?
Because the sale is usually the largest single cash flow in the model and it lands at the end, where discounting bites hardest. A fifty basis point move in the exit cap rate typically moves IRR more than any operating assumption.
Should I use IRR or equity multiple?
Both. IRR measures speed and multiple measures magnitude. A high IRR with a low multiple means a fast, small profit; a strong multiple with a modest IRR means a large, slow one.
Tools: deal analyzer · DSCR · IRR · all calculators · Justin Crow, South Florida commercial broker