IRR (Internal Rate of Return)
A metric used to evaluate the profitability of an investment over its entire holding period, accounting for the time value of money. IRR represents the discount rate at which the net present value of all cash flows equals zero. Investors typically target IRRs of 15-25% depending on risk profile and investment strategy.
Related Terms
Cap Rate (Capitalization Rate)
A rate used to estimate the value of income-producing properties, calculated by dividing NOI by the property's market value or purchase price. A property with $500,000 NOI and a 5% cap rate would be valued at $10 million. Lower cap rates indicate higher values and are typical in primary markets; higher cap rates suggest higher risk or secondary/tertiary markets.
Equity Multiple
A measure of total return on invested equity, calculated by dividing total distributions received by total equity invested. An equity multiple of 2.0x means investors doubled their money. Unlike IRR, equity multiple does not account for the timing of returns but provides a simple measure of total profit.
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