Internal Rate of Return Calculator
Calculate the internal rate of return on a property investment from the cash invested, the annual cash flow and the net proceeds at sale.
💼 Are you a real estate agent or broker? Send this calculator to your buyers on your own branded listing page — every enquiry comes straight to your WhatsApp. Create free agent page →Cash-on-cash return measures one year and total return measures one year with growth added. Neither accounts for when money actually arrives, which matters when most of the return comes as a lump sum years away.
Internal rate of return is the annual rate at which every cash flow, discounted back to today, sums to zero. It is the measure that lets a property investment be compared directly with anything else that produces cash over time.
What IRR measures
It is the discount rate at which the present value of every future cash flow exactly equals the cash you put in. Because it discounts by time, a return arriving in year ten counts for much less than the same amount in year two, which is exactly the distinction simpler measures miss.
Worked example
Investing 100,000, receiving 7,200 a year for ten years and 190,000 net on sale returns 262,000 in total — a 2.62 multiple and 162,000 of profit. Discounted properly, that is an internal rate of return of about 12.3% a year, which is the figure comparable with any other investment.
A high multiple is not a high IRR
Doubling your money is excellent in five years and unremarkable in twenty. IRR is what separates the two, and it is why a property held far too long can show a good multiple and a poor annual return.
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Create your free property pageFrequently asked questions
How is IRR different from total return?
Total return adds everything up without regard to timing. IRR discounts each cash flow by when it arrives, so it penalises returns that come late. Two investments with identical totals can have very different IRRs.
What IRR should a property investment target?
It depends on risk and what else is available. Compare against the return on a low-risk alternative plus a premium for illiquidity, management and the possibility of a bad tenant or a soft market.
What are the limits of IRR?
It assumes cash flows can be reinvested at the same rate, which is often unrealistic, and it can behave oddly where cash flows change sign more than once. Read it alongside the multiple and the absolute profit.