Irr calculator

Where AI changes the answer

Internal Rate of Return is the single most-cited deal metric in CRE underwriting — and the most misunderstood. IRR is not a property characteristic. It is a function of three lever pulls: how much equity you put in, how much cash you collect each year, and what you sell for at exit. Move any one of those three, and the IRR shifts — sometimes dramatically. This irr calculator solves IRR iteratively from your exact inputs, but the real question is how AI changes your analysis before and after you hit calculate. **Where AI changes the IRR answer:** **1. Exit cap rate sensitivity — the most dangerous assumption in any IRR model.** IRR is more sensitive to your exit cap rate assumption than to almost any other input. A 25bps move in your assumed exit cap on a $2M NOI property changes the sale price by roughly $1–2M — which can shift IRR by 100–300bps depending on your hold period and leverage. AI can model exit scenarios across a cap-rate range in seconds: 50bps wider cap = X% lower IRR; 50bps tighter cap = X% higher IRR. Any range shown is an ESTIMATE based on illustrative cap-rate sensitivity — not a market quote. Verify with current comparable transaction cap rates for your asset class and submarket. **2. Hold period: the reinvestment assumption trap.** IRR implicitly assumes that every cash flow you receive during the hold period is reinvested at the IRR rate itself. In reality, interim distributions are often redeployed at lower rates — the risk-free rate, another deal's cash-on-cash, or into reserves. This makes IRR overstate the true annualized return when cash flows are large and early. Equity multiple corrects for this: it tells you the total money-on-money return in nominal dollars, with no reinvestment assumption. A deal with a 20% IRR over 3 years and a 1.4x equity multiple is weaker than a deal with a 15% IRR over 7 years and a 2.0x equity multiple — despite the higher headline IRR. AI can surface both metrics simultaneously and explain the trade-off for your specific hold horizon. **3. Cash-flow timing and IRR manipulation.** Because IRR is a time-weighted metric, deals structured to concentrate early cash flows — through upfront fees, above-market management fees, or aggressive first-year refi distributions — can show high IRRs that do not reflect economic value to the LP. AI flags when early cash flows are disproportionately large relative to the underlying NOI, which is a signal to re-weight toward equity multiple and preferred-return coverage in your analysis. **4. What a good IRR looks like in CRE (ESTIMATE — ranges vary by cycle and risk).** Value-add multifamily: target IRRs typically range 12–18% (ESTIMATE). Core-plus acquisitions: 8–12% (ESTIMATE). Opportunistic / development: 18–25%+ (ESTIMATE). These are decision-support benchmarks — not guarantees or market quotes. IRR requirements also vary by LP profile, fund mandate, preferred-return hurdle, and leverage. Confirm with current market data before pricing a deal. This calculator is decision-support for CRE investors modeling hold-period returns. It does not substitute for a full pro-forma, lender underwriting, or investment advisory services.

Questions real estate teams ask