Definition
Internal rate of return is annualized return accounting for when money is invested and returned. It's the standard investment comparison metric.
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IRR is annualized return accounting for when money is invested and returned. Higher IRR indicates better returns. 8-10% typical for conservative deals. 12-15%+ for aggressive deals. Sensitive to timing assumptions. Projected IRRs are estimates; actual results vary. Essential comparison metric across investments. Required for investor decision-making. Professional analysis produces realistic IRRs. Conservative sponsors project 8-12% IRRs. IRR accounts for purchase price, operations, exit price, and timing.
Pro Tip
Compare projected IRRs, but understand they are estimates. Historical sponsor performance predicts actual returns.
Example
Syndication projected 12% IRR over 7-year hold period.