IRR vs Stock Market Comparison

[Laleh Omaraie]

I'm trying to make sure I understand IRR correctly. Is it correct that I can compare the IRR to average stock market returns? For example, could I theoretically set a metric that, since the S&P500 historically returns 7% adjusted for inflation, an IRR > 7% indicates that it's likely preferable to invest in said property rather than the S&P 500?

[Greg Scott]

IRR is one metric.

Personally, what I focus on is total return, effectively an amalgamation of several metrics.   Here are some things I consider

- Equity growth - understanding how my wealth is expected to grow

- Cash flow - because you need cash to pay the bills (We no longer have a W2)

- Tax efficiency - A simple IRR misses this point. All else equal, real estate is much more tax-efficient than stocks