What Is The Internal Rate Of Return? | Multifamily Real Estate Investing

What Is The Internal Rate Of Return? | Multifamily Real Estate Investing


Meet Katie Katie is analyzing many
multifamily properties for a potential investment but does not quite grasp IRR
or internal rate of return Katie’s co-worker Kim tells her that the IRR
shows investors what the average annual return is when the time value of money
is factored in in other words the IRR is an estimate of the value of property
generates during the time you own it Kim explains that the IRR is a great metric
to analyze properties because it allows investors to see how quickly their money
is being returned out of an investment property she explains that unlike cap
rate the IRR looks beyond the NOI and purchase price providing investors
greater insight into the returns they can receive from asset entry to asset
exit the higher the projects IRR the more desirable it is to undertake IRR is
uniform for investments of varying types and as such IRR can be used to rank
multiple prospective projects on a relatively even basis Kim tells Katie to
consider that the IRR does make many assumptions about a property’s cash flow
which can alter and affect the IRR so it should only be one of many factors to
consider before she invests Katie now feels confident in her understanding of
IRR and is excited to use it to better analyze multifamily properties Subscribe!

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