CHAPTER 25Calculation 19: Internal Rate of Return

What It Means

Internal rate of return (IRR) is probably the rate-of-return measurement most widely used by real estate professionals. It allows you to take into account both the timing and the magnitude of cash flows produced by your income-property investment.

It’s not a silver bullet; no approach to investment decision making is. And by no means should you use it to the exclusion of other measurements discussed in this book. Those others run a range from the simplistic to sophisticated, but virtually all of them can help fill in the whole picture. A property’s operating expense ratios, for example, may not give you enough information by themselves to guide you to a purchase decision, but they ...

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