Free calculator · no signup
What annual return does the deal produce once timing is counted? Enter the cash flows and the sale to get internal rate of return.
IRR is the discount rate at which the net present value of every cash flow equals zero. It has no closed-form solution, so it is found by iteration: the calculator tries rates until discounted inflows match the initial outflow. The inputs are the cash out at purchase, each year of cash flow, and the net proceeds at sale.
Timing is the entire point of the metric. A dollar in year one and a dollar in year seven are not the same dollar, and IRR is the only common real estate measure that prices the difference. On a deal where most of the return arrives at exit, IRR falls as the holding period lengthens even while total profit rises.
On most leveraged rentals, IRR is dominated by the sale assumption. When annual cash flow sits near zero, as it does on this duplex at 80% leverage, nearly the whole return lives in the exit price, and IRR becomes a forecast of that price rather than a measurement of the property.
IRR assumes interim cash flows are reinvested at the IRR itself, which is rarely available. That assumption inflates the figure on deals with large early distributions, and it is the reason MIRR exists as an alternative.
A higher IRR is not automatically more money. A 20% IRR over eighteen months on a small basis and a 14% IRR over eight years on a large one produce very different dollar outcomes, and IRR alone cannot rank them. Equity multiple is the companion number that shows size.
More than one sign change in the cash flow stream can produce multiple mathematically valid IRRs. A deal with a large capital call in year four is the ordinary case, and the output stops meaning what it appears to mean.
The figure is only interpretable alongside the holding period, the leverage, and how much of the return depends on the exit assumption. An IRR built mostly from a projected sale price is a forecast wearing the clothes of a measurement.
ROI totals the gain and divides by the cash invested, ignoring when anything happened. IRR discounts each cash flow by its timing. The same deal produces different figures, and the gap widens as the holding period lengthens.
Because the largest cash flow, the sale, moves further into the future and gets discounted harder. Total profit can rise while the annualized rate falls, and both statements describe the same deal accurately.
Equity multiple is total cash returned divided by cash invested, with no time weighting. Quoted together, IRR gives the rate and multiple gives the magnitude, which is what keeps a fast small deal from outranking a large one on the strength of its speed alone.
Yes, whenever total distributions including the sale come to less than the cash invested. A leveraged deal that sells flat after several years of negative cash flow is the common path to it.
Free to use on your own site. Paste this where you want the calculator to appear. It resizes itself to fit, and works without the script if you would rather not load one.
<iframe src="https://www.realestatecalculations.com/embed/irr/"
title="IRR calculator for real estate by Recalc" width="100%" height="720" loading="lazy"
style="border:1px solid #DDE7E9;border-radius:8px;max-width:680px"></iframe>
<p style="font:14px/1.5 system-ui,sans-serif;margin:8px 0 0">
<a href="https://www.realestatecalculations.com/calculators/irr/">IRR calculator for real estate</a> by Recalc
</p>
<script src="https://www.realestatecalculations.com/embed.js" async></script>The attribution link is required. Everything else is yours to restyle.