Returns

What Is Internal Rate of Return (IRR)?

The internal rate of return is the single annualized rate that captures every cash flow of a deal over the entire hold, including the eventual sale.

Where cash-on-cash return is a single-year snapshot, IRR accounts for the whole business plan: annual cash flow, loan paydown, appreciation, and the exit, and it weights each by when it happens. A dollar returned next year is worth more than one returned in year five, and IRR is the rate that reflects that. Technically, it is the discount rate at which the deal's net present value equals zero.

Use IRR to compare full business plans, and read it alongside the equity multiple: IRR tells you how fast, the multiple tells you how much. RVP Underwriter reports a projected multi-year IRR on every deal.

Related terms

• Equity Multiple
• Cash-on-Cash Return
• Cap Rate

Part of the RVP Underwriter glossary of income-property underwriting terms. Browse all definitions, or put them to work with the free calculators.