IRR calculator
Most IRR calculators ask you to paste a list of cash flows, which means the hard part is already done somewhere else. This one asks for the deal and builds the series: equity at close, NOI growing against a payment that does not, and net proceeds at the exit. The rate is above the table, and the table is the thing you can check.
The cash flows behind that number
An IRR you cannot see the series for is a number nobody can check. This is the series being solved, discounted in the last column at the rate you entered. Add the last column up and you get the net present value; the IRR is the rate that makes that sum zero.
| Year | NOI | Debt service | Cash flow | Capital | Total | Cumulative | Present value |
|---|---|---|---|---|---|---|---|
| Close | -$3,700,000 | -$3,700,000 | -$3,700,000 | -$3,700,000 | |||
| Year 1 | $600,000 | -$480,000 | $120,000 | $120,000 | -$3,580,000 | $111,111 | |
| Year 2 | $618,000 | -$480,000 | $138,000 | $138,000 | -$3,442,000 | $118,313 | |
| Year 3 | $636,540 | -$480,000 | $156,540 | $156,540 | -$3,285,460 | $124,267 | |
| Year 4 | $655,636 | -$480,000 | $175,636 | $175,636 | -$3,109,824 | $129,098 | |
| Year 5Payback | $675,305 | -$480,000 | $195,305 | $5,463,000 | $5,658,305 | $2,548,481 | $3,850,948 |
The same deal, said three other ways
| Measure | Value | What it ignores |
|---|---|---|
| Equity multiple | 1.69x | Time. $6,248,481 back on $3,700,000 in is the same multiple whether it takes three years or thirty. |
| Average annual cash-on-cash | 4.25% | The exit. It measures the operating years only, which is why a deal can pay well and still lose money. |
| Average annual return | 13.78% | When the money came back, which is the whole thing an IRR is for. Profit divided by equity divided by years. It is not an IRR and should never be labelled as one. |
Annual, end-of-period flows, the convention a memo means by an IRR. Growth compounds from year two. The exit figure is whatever you typed, so the answer is only as good as that estimate: it carries the exit cap rate, the selling costs, and the loan balance all inside one number.
This solves an IRR once you know the cash flows. Working out what those cash flows are is the underwriting: the rent roll, the T-12, the debt schedule, the rollover, and the exit. Altyst reads the documents and builds all of it, then runs the return on the model rather than on a summary.
The definition, and why there is no formula for it
The internal rate of return is the discount rate at which a deal's cash flows are worth exactly what you paid for them. Discount every future dollar back at that rate, add the results to the money you put in at close, and the total is zero. That is the whole definition, and it is why the present value column sits in the table above: the IRR is not a separate calculation, it is the rate that makes that column add up to nothing.
There is no formula to rearrange. The equation is a polynomial in the discount rate with one term per year, and beyond a handful of years no closed form exists, so every tool that reports an IRR reaches it by trial. Excel starts from a guess and iterates, which is fast and occasionally fails to converge or converges on a rate nobody meant. This page scans for a range where the present value changes sign and halves that range until the answer stops moving. Slower by an amount no one can perceive on a five-year hold, and it cannot wander off.
A worked example
The figures the calculator loads with are the deal every tool on this site opens with, carried to an exit. A $10,000,000 property at a 6.0% going-in cap produces $600,000 of NOI. The loan sizing calculator sizes that to about $6.33m at a 1.25x coverage floor, so a $6,300,000 loan leaves $3,700,000 of equity, and $480,000 of annual debt service against $600,000 of NOI leaves $120,000 of cash flow in year one.
- Year one is a 3.24% cash-on-cash return. $120,000 on $3,700,000. That is a thin start, and on its own it looks like a deal not worth doing.
- The cash flow grows five times faster than the rent. NOI at 3% growth goes from $600,000 to $618,000. The payment does not move, so the cash flow goes from $120,000 to $138,000, which is 15%. Every dollar of NOI growth lands on the equity line undiluted. This is what leverage does when it works, and it is the part a single-year return measure cannot show.
- The exit is most of the answer. NOI grown for five years and capitalized at the same 6.0% cap on the forward year is about $11.6m of value; net of 2% of selling costs and the $5,897,491 of loan balance left after five years of amortization, roughly $5,463,000 reaches the equity. That single figure is worth more than all five years of cash flow combined.
- The result is an 11.68% IRR and a 1.69x equity multiple, with $2,548,481 of profit and the equity paid back in year five, at the sale. Compare that to the same property bought for cash: no debt, no payment, and an 8.63% IRR on a 1.46x multiple. The leverage added three points of return here. It would have subtracted them at a higher coupon.
The number that is not an IRR
Take the same deal and compute it the way it is most often quoted informally: $2,548,481 of profit on $3,700,000 of equity is 68.9%, over five years, so 13.8% a year. That figure is on the page, labelled as what it is, and it is nearly two points above the real answer. It is higher because it treats a dollar arriving in year five as identical to a dollar arriving in year one, which is precisely the assumption an IRR exists to reject.
The equity multiple has the opposite bias and is still worth reporting, because it is honest about what it ignores. 1.69x is 1.69x whether the hold took three years or thirty. An IRR without a multiple beside it flatters a fast, small deal; a multiple without an IRR flatters a slow, large one. Quote both, always, and quote the hold period with them.
Where a published IRR usually goes wrong
Not in the solver. Every tool agrees on the rate once the flows are agreed, so a disagreement about an IRR is nearly always a disagreement about the series, and it concentrates in three places.
- The exit line is a sale price rather than net proceeds. Selling costs and the loan payoff both come out before the equity sees anything. Leaving the loan balance in overstates the return enormously on a levered deal.
- The exit cap rate is the going-in cap rate. Assuming you sell at the yield you bought at is an assumption, not a neutral choice, and it is the one that quietly carries most of the answer. Moving it a quarter point is worth more than a year of rent growth. The going-in versus exit cap entry sets out the convention.
- Fees and promote are missing. A project-level IRR, an IRR after asset management fees, and the IRR a limited partner actually receives after the promote are three different numbers on one deal. If a page does not say which one it is quoting, assume the most flattering. How the split works is in how a real estate waterfall works.
When one series has more than one IRR
If money goes out, comes back, and goes out again, the polynomial can have several real roots, and every one of them is a rate that sets the present value to zero. This happens for real: a development that draws capital in stages, a deal with a capital call after a bad year, a refinance that returns capital mid-hold and a shortfall later. Most calculators return whichever root they find first and say nothing. This one counts the sign changes in the series and tells you when the answer is not unique, at which point the honest measure is the net present value at your own required return, which is a single number whichever root you would have quoted.
What this page does not do
It does not take arbitrary cash flows. The series is built from a hold, which keeps every figure on screen checkable but means a capital call in year three, a partial sale, or a mid-hold refinance needs a real model rather than a calculator. It does not model taxes, so this is a pre-tax IRR: the depreciation, the recapture, and the exchange are in the after-tax guide. It does not apply a promote, and it does not tell you whether the rate it computed is good. That question is relational and is answered in what is a good IRR. And it is not advice: it is arithmetic on the numbers you typed, with the conventions it used stated on the page.
Questions
What is IRR in real estate?
The internal rate of return is the annual compounding rate at which a deal's cash flows are worth exactly what you paid for them. Put formally, it is the discount rate that sets the net present value of the whole series to zero. It is the one common return measure that accounts for when money arrives as well as how much: the same total profit is a higher IRR if it comes back sooner, which is why it is the number a fund reports and the number a promote is usually struck against.
How do you calculate IRR by hand?
You do not, and neither does a spreadsheet. There is no closed-form solution for a rate that satisfies a polynomial of more than a few terms, so every tool solves it by trial: guess a rate, discount the flows, see whether the total lands above or below zero, and narrow. This calculator scans for a bracket where the present value changes sign and then bisects inside it, which is slower than the method Excel uses and cannot fail to converge.
What is a good IRR for a real estate deal?
It depends on the risk you took to get it, and any single number quoted without that context is meaningless. A stabilized, low-leverage hold and a ground-up development that both return 15% are not comparable investments, and neither is a 15% earned over ten years and a 15% earned over eighteen months. The honest way to judge one is relational: against the same deal unlevered, against your own cost of capital, and against the downside case. That is written out in full on the page about what a good IRR is.
Why is my IRR different from the sponsor's?
Almost always because of the exit assumption or the fee layer, not because of the arithmetic. Check three things in order. First, the exit cap rate: a quarter point moves the sale value by several percent and the IRR by more. Second, whether the sale figure is net of selling costs and the loan payoff or is a gross price. Third, whether the flows are before or after promote, asset management fees, and taxes, because a project-level IRR and the IRR an investor actually receives are different numbers on the same deal.
Is a higher IRR always better?
No, and the two ways it misleads are worth knowing. A short hold flatters it: a quick flip can post a spectacular IRR on a small absolute profit, which is why the equity multiple is always reported beside it. And the measure implicitly assumes cash coming back can be redeployed at the same rate, which is rarely true, so a high IRR built on early distributions is worth less than it looks. Judge a deal on the IRR, the multiple, and the shape of the series together.
Does this calculator handle irregular cash flows?
Not arbitrary ones. It builds the series from a hold: equity in at close, NOI growing at a rate you set, a flat annual debt service, and net proceeds at the exit. That is the shape of an acquisition, and it keeps every figure on the page checkable. A deal with a capital call in year three, a partial sale, a refinance mid-hold, or a lease-up that swings cash flow negative and back needs a real model rather than a calculator, which is what the product is for.
What is the difference between IRR and cash-on-cash?
Cash-on-cash is one year's cash flow divided by the equity, so it ignores the exit and ignores time entirely. IRR takes the whole series, including the sale, and asks what compounding rate would have produced it. A deal can pay a thin cash-on-cash for five years and still produce a strong IRR because most of the return arrives at the sale, and the reverse happens too. Both figures are on this page for exactly that reason.
Do you store what I type?
Not the figures. The math runs in your browser, nothing you type is sent to us, and there is no account or email field. Your scenario is written into the page address so you can bookmark it or send it to a partner, which does mean a link you share carries your figures with it. The page does carry the site's normal cookies, which the cookie notice lists; the embeddable version carries none.
The hard part is the series, not the rate
Altyst reads the offering memorandum, the rent roll, and the T-12, builds the NOI this page asks you to type, sizes the debt, carries the lease rollover and the capital plan year by year, and runs the return on the model rather than on a summary of it.