Includes down payment, closing costs, and immediate renovation costs.
Includes mortgage payments, taxes, insurance, and maintenance.
The net amount you expect to receive after selling the property.
Estimated Internal Rate of Return (IRR)
0.00%
Understanding Internal Rate of Return (IRR) in Real Estate
The Internal Rate of Return (IRR) is one of the most comprehensive metrics for evaluating the profitability of a real estate investment. Unlike simple metrics like Cash-on-Cash Return or Cap Rate, which usually look at a single year's performance, IRR considers the time value of money over the entire holding period of the asset.
Essentially, the IRR is the annualized percentage rate earned on each dollar invested for each period it is invested. It accounts for:
The initial cash outlay (purchase price, closing costs, renovations).
The ongoing cash flows (rental income minus expenses).
The proceeds from the final sale of the property (reversion value).
The timing of when these cash flows are received.
How This Calculator Works
This calculator constructs a cash flow model based on your inputs. It assumes the initial investment occurs at Year 0 (negative cash flow). For the subsequent years defined in your Holding Period, it calculates the annual Net Operating Income (NOI) or cash flow. In the final year, it adds the Estimated Future Sale Price to that year's cash flow.
Mathematically, the calculator iteratively solves for the discount rate ($r$) that sets the Net Present Value (NPV) of all cash flows to zero:
ROI (Return on Investment) typically measures total profit divided by total cost, but it fails to account for when the money is received. A 50% ROI over 10 years is very different from a 50% ROI over 2 years.
Cash-on-Cash Return only measures annual pre-tax cash flow against the actual cash invested. It ignores principal paydown and appreciation realized upon sale.
IRR combines all profit centers—cash flow, principal paydown, and appreciation—into a single annualized percentage, making it the gold standard for comparing investments with different holding periods and cash flow structures.
What is a Good IRR for Real Estate?
"Good" is subjective and depends on risk tolerance, but generally:
10% – 12%: Often acceptable for lower-risk, stabilized core assets.
12% – 18%: A common target for value-add multifamily or residential projects.
20%+: Typically sought for high-risk development projects or distressed flips.
function calculateRealEstateIRR() {
// 1. Retrieve Inputs
var initialInvestment = parseFloat(document.getElementById('initialInvestment').value);
var monthlyIncome = parseFloat(document.getElementById('monthlyRentalIncome').value);
var monthlyExpenses = parseFloat(document.getElementById('monthlyExpenses').value);
var holdingPeriod = parseInt(document.getElementById('holdingPeriod').value);
var futureSalePrice = parseFloat(document.getElementById('futureSalePrice').value);
// 2. Validation
if (isNaN(initialInvestment) || isNaN(monthlyIncome) || isNaN(monthlyExpenses) || isNaN(holdingPeriod) || isNaN(futureSalePrice)) {
alert("Please fill in all fields with valid numbers.");
return;
}
if (initialInvestment <= 0 || holdingPeriod <= 0) {
alert("Initial investment and holding period must be greater than zero.");
return;
}
// 3. Construct Cash Flow Array
// Year 0: Negative Initial Investment
var cashFlows = [];
cashFlows.push(-1 * initialInvestment);
// Calculate Annual Net Cash Flow
var annualCashFlow = (monthlyIncome – monthlyExpenses) * 12;
// Years 1 to N-1
for (var i = 1; i < holdingPeriod; i++) {
cashFlows.push(annualCashFlow);
}
// Final Year (Year N): Annual Cash Flow + Sale Proceeds
cashFlows.push(annualCashFlow + futureSalePrice);
// 4. Calculate IRR using Newton-Raphson approximation
// We are looking for 'r' where NPV = 0
var irr = 0.1; // Initial guess (10%)
var maxIterations = 1000;
var tolerance = 0.000001;
var found = false;
for (var i = 0; i < maxIterations; i++) {
var npv = 0;
var d_npv = 0; // Derivative of NPV
for (var t = 0; t 0) {
var d_denominator = Math.pow(1 + irr, t + 1);
d_npv -= (t * cashFlows[t]) / d_denominator;
}
}
if (Math.abs(npv) < tolerance) {
found = true;
break;
}
if (d_npv === 0) {
break; // Prevent division by zero
}
var newIrr = irr – (npv / d_npv);
// Check for divergence or invalid rates
if (Math.abs(newIrr – irr) = 0 ? "#27ae60" : "#c0392b"; // Green for positive, red for negative
var totalProfit = (annualCashFlow * holdingPeriod) + (futureSalePrice – initialInvestment);
breakdownDisplay.innerHTML =
"Summary Analysis:" +
"Initial Outlay: $" + initialInvestment.toLocaleString() + "" +
"Annual Cash Flow: $" + annualCashFlow.toLocaleString() + "" +
"Total Cash Flow over " + holdingPeriod + " years: $" + (annualCashFlow * holdingPeriod).toLocaleString() + "" +
"Total Net Profit: $" + totalProfit.toLocaleString();
} else {
valueDisplay.innerHTML = "Calculation Error";
breakdownDisplay.innerHTML = "The cash flows entered do not result in a valid IRR solution. This usually happens if there is no profit or the numbers are extremely disproportionate.";
}
}