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IRR accounts for the time value of money — the principle that a dollar today is worth more than a dollar tomorrow.

In multifamily real estate, IRR calculates the rate of return on the property, considering rental income, property appreciation, and the time period of the investment.

Simply stated: IRR is the annualized, time-weighted return of your investment.

Let’s break down exactly how IRR works.

Notice that it is impossible to have a positive IRR unless there is a full return of capital and then some.

If you invested $100K and received $100k 3 years later, the IRR would be 0%.

As shown in the picture, the IRR is negative until Year 3 when the 100,000 (return of capital) happens. The cash flow received + the return of capital creates a positive IRR.

It’s important to note that the IRR should not be the only metric that sways your decision when evaluating real estate investments like a multifamily property. Regarding return expectations, IRR returns in many real estate investment asset classes are usually in the teens.

So what the heck is a good IRR?

Generally speaking, here are some guidelines:

• Acquisition of stabilized asset – 10% IRR

• Acquisition & repositioning of asset – 14% IRR

• Development in established area – 20% IRR

• Development in rural area – 25% IRR

• A Window Of Opportunity

• High Apartment Supply Still Muting Performance Fundamentals

• Apartment Rent Growth Remains Aloof in February as Occupancy Stabilizes

• Multi-perspective View on Cap Rates

• Annualized Permits and Starts Increase in February

• Multifamily Permitting Falls 9% in January

• How new apartments create opportunities for all

• Apartment List Renter Migration Report: 2024

📈 Chart of The Week

West Region Records Nation’s Slowest Apartment Rent Growth Since Pandemic

Over the last four years, rents in the West have climbed from an average rate of $1,831 in February 2020 to $2,204 in February 2024 – an increase of about 20%

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