IRR: Full Breakdown

[Justin Goodin]

Question for the BP Forum: 
If you invested $100K and received $500k back, is that a good deal?

It depends...

We need to consider the length of time it took to receive that $500K.

That's where the IRR, or internal rate of return, comes in.

I bet you would be less excited if it took 30 years to earn that $500k vs. if it took 7 years.

// Simply stated: IRR is the annualized, time-weighted return of your investment.

Real estate investors can use the IRR to compare different investment opportunities. Many people have heard of IRR, but in my experience, very few understand the purpose of it.

So what the heck is a good IRR?

Generally speaking, here are some guidelines:

// Acquisition of stabilized asset – 10% IRR
// Acquisition & repositioning of asset – 14% IRR
// Development in established area – 20% IRR
// Development in rural area – 30% IRR

What questions do you have about IRR?