Definition
IRR accounts for timing of cash flows, making it sophisticated for comparing investments with different time horizons. It's standard for institutional investors.
Not sure where this fits?
Answer a few questions and we’ll open the path that fits, at the right step.
Find my pathAbout this term
IRR accounts for the timing of cash flows, making it more sophisticated than simple ROI calculations. It's particularly useful for comparing investments with different time horizons or cash flow patterns. IRR is commonly used by institutional investors and for evaluating exit strategies like sales or refinancing.
Pro Tip
IRR is especially useful comparing fix-and-flip and buy-and-hold strategies.
Example
A property requiring $50,000 initial investment generating $5,000 year 1, $6,000 year 2, $7,000 year 3, and $150,000 from sale might have an IRR of 18%