IRR
InvestingDefinition
Internal Rate of Return. The discount rate that makes the net present value of all cash flows from an investment equal to zero. Captures both the size and the timing of every cash flow.
For real estate deals: 12-18% net IRR is typical for value-add multifamily, 8-12% for stabilized. PE: 20%+ at the deal level, 10-12% net of fees. IRR can be misleading on highly skewed cash flows or deals with reinvestment assumptions; pair with multiple-on-invested-capital (MOIC).
For real estate deals: 12-18% net IRR is typical for value-add multifamily, 8-12% for stabilized. PE: 20%+ at the deal level, 10-12% net of fees. IRR can be misleading on highly skewed cash flows or deals with reinvestment assumptions; pair with multiple-on-invested-capital (MOIC).
Example
Invest $1M today. Receive $1.6M in 5 years. IRR = 9.86%. Same $1M getting back $1.4M in year 5 plus $50K/year coupons → IRR ~12%.