What is an IRR?

When it comes to commercial real estate transactions, there are a number of factors to consider before sealing the deal on an investment property.

One of which is IRR or Internal Rate of Return, what is an IRR and what is its importance in commercial real estate?

Internal Rate of Return is one of the many metrics commercial brokers take into consideration before selling or buying a commercial property for their clients. Understanding what IRRs are and how to analyze them in the current market can make or break a CRE deal.

Essentially IRRs are used by commercial brokers and investors to help predict the value of an investment over time. This calculation quantifies the yield you’ll achieve after you invest in a property after a 10-year period.

This calculation accounts for the income generated by the property with expenses, or the Net Operating Income (NOI), which assumes that you will sell the property based on future income come the tenth year.

Calculating a property’s IRR can be a complex one, many brokers create and use their own Excel sheet with the appropriate set of equations for the calculations. Unfortunately this can easily end in an error, which not only affects one calculation but the overall IRR calculation.

To ease the complication IRR calculations along with Cap Rate, NOI, and 10-Year Cash Flow calculations can insue, we’ve created an easy to use calculator that will create an in-depth analysis for all of your property investments. Use our free IRR Calculator or purchase your very own Branded IRR Calculator that you can include in your email signature, promote on your website to attract new leads and provide clients with the most advanced CRE investment calculations.