Help with assessing a project - internal rate of return

1 Reply


I'm looking at putting together my first project - a multifamily in Houston. I ran the numbers and came up with a 17% IRR and a 7% cap rate over a 20 year horizon. I'm trying to understand whether this project is superior to putting my capital in the stock market (which I'm assuming will return 7%). I understand the math behind the IRR number (setting NPV equal to 0) but I'm having trouble capturing the intution of how to compare that to stock market returns. Also I know that investors generally want a cap rate of 8-12%, but I think that may be arbitrary. Could someone please help me figure out how to interpret these nubmers (as oposed to putting my money in the stock market)? Thanks.

Don't forget that with real estate you are also getting tax deductions, appreciation, and principal pay down in addition to cash flow. While some of your money should be in a stock market, don't put everything in it. Real estate is a great tool to build long-term wealth. I think that you will regret not buying real estate and instead putting money in a stock market. In addition to all of the benefits you get with real estate, you are also able to use leverage on it. 

Also before you decide on a property, talk to local brokers to make sure you are using the right cap rate for your assumptions to get the most accurate IRR. Good luck with everything!

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