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.