Investing Education

Why You Can’t Always Trust IRR in a Real Estate Investment

Volatility in Stocks vs Private Real Estate

Learn why you shouldn’t rely solely on Internal Rate of Return (IRR) to evaluate a commercial real estate investment opportunity and why it’s important to use IRR in conjunction with equity multiple. IRR is one of the most common metrics real estate managers use to describe their return on investment, it represents the compounded annual percentage rate every dollar earns during the period of time it is invested.

The problem with using IRR as the primary indicator for a deal’s success is that it can be artificially inflated by minimizing the amount of time your capital is invested. So while a fund manager might report a 17% IRR on a million dollar investment, you cannot calculate your total return until you know the multiple on your invested capital.

This article is intended for informational and educational purposes only and is not intended to provide, and should not be relied on, for investment, tax, legal or accounting advice. The information is provided as of the date indicated and is subject to change without notice. Origin Investments does not have any obligation to update the information contained herein. Certain information presented or relied upon in this article may come from third-party sources. We do not guarantee the accuracy or completeness of the information and may receive incorrect information from third-party providers.