Calculate the Internal Rate of Return for any real estate investment. Used by institutional investors, CCIM analysts, and lenders to evaluate hold-period performance across any asset class.
What Is IRR in Real Estate?
Internal Rate of Return (IRR) is the annualized discount rate that makes the net present value of all cash flows — including purchase, annual income, and sale proceeds — equal to zero. It's the single most comprehensive measure of investment performance because it accounts for the time value of money across the entire hold period.
What Is a Good IRR for Real Estate?
- Below 10%: Below institutional hurdle rates. Typical for core/stabilized assets in gateway markets.
- 10–15%: Acceptable for value-add deals with moderate risk.
- 15–20%: Strong. Common target for value-add and opportunistic funds.
- 20%+: Exceptional. Ground-up development or deep value-add with execution risk.
IRR vs. Cash-on-Cash vs. Cap Rate
These three metrics answer different questions. Cap rate measures property-level yield ignoring financing. Cash-on-cash measures annual levered yield on your equity. IRR measures total return over the hold period including appreciation. CCIM-trained analysts use all three together — a deal can have a high cap rate but poor IRR if it doesn't appreciate, or a low cap rate but strong IRR if purchased below market.
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IRR Deep Dive: Formula, Worked Example & 2026 Benchmarks
How It Works
IRR is the discount rate at which the deal's cash flows sum to zero — equivalently, the constant annual growth rate your invested capital achieved. It can't be solved with simple algebra; it's found iteratively, which is why professionals use a calculator or spreadsheet rather than a formula.
Worked Example
Buy a property for $1,000,000 all-in. It produces $40,000/year in after-debt cash flow, and you sell after 5 years for $1,400,000.
Cash flows: −$1,000,000 today, +$40,000 in years 1–4, +$1,440,000 in year 5 (final year's cash flow plus sale).
IRR ≈ 10.5% — with an equity multiple of 1.60x ($1.6M back on $1M in) and $600,000 of total profit over the hold.
What Is a Good IRR in 2026?
Benchmarks vary by strategy and risk. Core, stabilized assets typically target 7–10% IRR; value-add deals 12–18%; opportunistic and development deals 18%+ to justify their risk. A 10–11% IRR on a low-risk stabilized asset is acceptable; the same number on a heavy-lift value-add deal would be inadequate compensation for the risk taken.
IRR vs. Cash-on-Cash: Why You Need Both
Cash-on-cash measures a single year's cash yield on your equity; IRR measures the whole journey including appreciation and sale. A deal can have weak cash-on-cash but strong IRR (appreciation play) or the reverse (cash cow with no growth). Professional underwriting reads them together — chasing IRR alone often means betting on exit assumptions.
The Exit-Price Sensitivity Warning
In shorter holds, IRR is dominated by the sale price — an assumption about a market 5 years away. A disciplined analysis always tests IRR at three exits (conservative, base, optimistic) before trusting the number.
Data sources for market context: Federal Reserve (FRED), U.S. Census ACS, HUD Fair Market Rents.