IRR Calculator
Internal rate of return accounts for every dollar in and out of a deal — including the sale — and when it happens, not just a single year's snapshot.
IRR
11.26%
What is IRR?
Internal rate of return (IRR) is the annualized return that makes the present value of every cash flow in a deal — your initial investment, each year's cash flow, and the proceeds from selling — net out to zero. It's the most complete single number for comparing an investment's return over its full holding period.
The formula
IRR is the discount rate r that solves: 0 = −Initial Investment + Σ (Cash Flow in year t) ÷ (1 + r)ᵗ, including the sale proceeds in the final year. There's no algebraic shortcut — it's solved by testing rates until the equation balances, which is exactly what this calculator does behind the scenes.
Why it matters
Cap rate and cash-on-cash return are single-year snapshots. IRR is the only common metric that accounts for the entire holding period at once — including the timing of cash flows and the size of the eventual sale — which is why it's the standard for comparing deals with different holding periods or exit strategies.
Frequently asked questions
What's a good IRR for real estate?
Many investors target somewhere in the 12-20% range for value-add or higher-risk deals, and lower (8-12%) for stable, lower-risk properties — but the right target depends heavily on your strategy, market, and how you weigh risk against return. IRR is most useful for comparing deals against each other, not against a single universal benchmark.
How is IRR different from cash-on-cash return?
Cash-on-cash return is a single-year snapshot. IRR accounts for every cash flow over the entire holding period — including the lump sum from selling the property — and factors in the time value of money, so a dollar today is worth more than a dollar five years from now. It's a more complete picture of a deal's return, but requires more assumptions (holding period, exit value) to calculate.
Why does this calculator assume a constant annual cash flow?
It's a simplification to make a standalone IRR estimate possible with just a few inputs. In reality, cash flow typically grows over time as rent increases. Monte Estate's full analysis models rent growth, expense growth, and appreciation year by year, then runs a 10,000-trial Monte Carlo simulation on top of that instead of a single static estimate.
Want the full picture?
This calculator assumes flat cash flow. Monte Estate models rent growth, expense growth, and appreciation year by year, then runs a 10,000-trial Monte Carlo simulation around your IRR — free to start, no credit card required.
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