Internal Rate of Return (IRR)

What it means

IRR is the discount rate that makes the net present value of all cash flows (negative and positive) equal to zero. It combines ongoing cash distributions with the exit sale and weights them by timing.

IRR is sensitive to assumptions: exit cap, rent growth, hold period, and leverage all move the number materially. It is easy to manipulate — shorter holds tend to inflate IRR relative to longer holds with the same total return. Always examine IRR alongside equity multiple.