Internal Rate of Return (IRR)

Internal Rate of Return (IRR)

What is IRR?

The IRR, or Internal Rate of Return, estimates a rental property’s profitability by considering a variety of factors such as purchase costs, sales proceeds, and annualized cash flows discounted for time value of money (TVM).

As a thumb rule, the higher the IRR of a rental property, the more appealing it is to purchase.

How do I calculate IRR?

\[ \sum_{n=0}^{N} {Cash \, flow \over (1+IRR)^n} = 0 \]

where n = number of periods

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