Includes down payment, closing costs, and immediate renovations.
$
Rental income minus all operating expenses (taxes, insurance, maintenance).
$
Internal Rate of Return (IRR):0.00%
Total Net Profit:$0.00
Equity Multiple:1.00x
function calculatePropIRR() {
// 1. Get Inputs
var initial = parseFloat(document.getElementById('initialInvest').value);
var annualCF = parseFloat(document.getElementById('annualCashFlow').value);
var salePrice = parseFloat(document.getElementById('salePrice').value);
var years = parseInt(document.getElementById('holdingPeriod').value);
// 2. Validate Inputs
if (isNaN(initial) || isNaN(annualCF) || isNaN(salePrice) || isNaN(years) || years < 1 || initial <= 0) {
alert("Please enter valid positive numbers for Investment and Years.");
return;
}
// 3. Build Cash Flow Array
// Year 0 is negative (outflow)
// Years 1 to N-1 are Annual Net Cash Flows
// Year N is Annual Net Cash Flow + Sale Price (Inflow from exit)
var flows = [];
flows.push(-initial); // T=0
for (var i = 1; i < years; i++) {
flows.push(annualCF);
}
// Final Year includes the sale price
flows.push(annualCF + salePrice);
// 4. Calculate IRR using iterative method (Approximation)
// Since we don't need Newton-Raphson derivative complexity for this UI,
// a robust binary search (Bisection method) is sufficient and stable.
var irr = 0;
var low = -0.9999; // Lower bound (-99.99%)
var high = 100.0; // Upper bound (10000%)
var epsilon = 0.000001; // Precision
var npv = 0;
var found = false;
// Safety break counter
var iterations = 0;
var maxIterations = 10000;
while (iterations < maxIterations) {
irr = (low + high) / 2;
npv = 0;
// Calculate NPV for current guessed IRR
for (var t = 0; t < flows.length; t++) {
npv += flows[t] / Math.pow((1 + irr), t);
}
if (Math.abs(npv) 0) {
// Rate is too low
low = irr;
} else {
// Rate is too high
high = irr;
}
iterations++;
}
// 5. Calculate Metrics
var totalInflow = (annualCF * years) + salePrice;
var totalProfit = totalInflow – initial;
var equityMultiple = totalInflow / initial;
// 6. Display Results
var irrPercentage = (irr * 100).toFixed(2);
document.getElementById('res_irr').innerHTML = irrPercentage + "%";
document.getElementById('res_profit').innerHTML = "$" + totalProfit.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('res_multiple').innerHTML = equityMultiple.toFixed(2) + "x";
document.getElementById('calcResults').style.display = "block";
}
Calculating Internal Rate of Return (IRR) for Property Investment
In real estate investing, determining the true profitability of an asset requires more than just looking at monthly cash flow or simple ROI. The Internal Rate of Return (IRR) is arguably the most critical metric for evaluating the performance of a property investment over time. It accounts for the time value of money, providing a clearer picture of annualized growth compared to static metrics like Cap Rate or Cash-on-Cash Return.
Definition: The Internal Rate of Return (IRR) is the annual rate of growth that an investment is expected to generate. It is the discount rate that makes the Net Present Value (NPV) of all cash flows from a particular project equal to zero.
Why Use IRR for Real Estate?
Real estate investments typically involve a large initial outflow of cash (purchase and renovation), followed by a series of smaller inflows (rent), and finally a large lump sum inflow upon sale (disposition). Simple ROI fails here because receiving $100,000 today is worth more than receiving $100,000 ten years from now.
IRR solves this by factoring in:
Timing of Cash Flows: Profits received sooner increase the IRR.
Appreciation: The profit realized at the sale of the property.
Initial Outlay: The total capital tied up in the deal.
How the Calculation Works
Unlike simple addition, calculating IRR involves finding the rate ($r$) that satisfies the following equation where the Net Present Value equals zero:
A simple ROI calculation might look like this: Total Profit = ($8,000 × 5) + ($150,000 – $100,000) = $90,000.
ROI = $90,000 / $100,000 = 90% over 5 years, or 18% average per year.
However, the IRR calculation yields approximately 14.8%. This is lower than the average ROI because the bulk of the profit ($50,000 appreciation) is not realized until the very end (Year 5), reducing the time-weighted value of that return.
Interpreting Your Results
What is a Good IRR?
"Good" is subjective and depends on the risk profile of the asset class:
Core Real Estate (Low Risk): 7% – 10% IRR
Value-Add Projects (Medium Risk): 12% – 18% IRR
Opportunistic/Development (High Risk): 20%+ IRR
Equity Multiple
The calculator also outputs the Equity Multiple. This tells you how much money you get back relative to what you put in. A 2.0x multiple means you doubled your money. While IRR measures the speed of returns, the Equity Multiple measures the total quantity of returns.