Can someone explain to me the purpose of IRR without saying it’s used to bring my net present value to zero? That makes absolutely zero sense to me and I’m sure most newbies as no one is looking for zero yet everywhere you look it’s the first part of the explanation/definition which isn’t helpful in slightest.
Hi,
Internal Rate of Return is not an application to real estate.
In commercial real estate we use cap rates and gross rents multipliers! In residential property we use cash on cash returns!
GR
The IRR is used on projects to compare one to the other as if they were stand alone ventures so that you can see which one is the best to persue. But as G R said it doesn’t work very well in real estate. It works in manufacturing or distribution better.
Ummmmm…I’ve completed nearly 400 transaction and have yet to use (or understand) IRR. Here is the formula I use:
Buy for $1.00 cash, Sell for $2.00 and finance it…that (as Jimmy Napier says) is my 2% rule.
That’s all the formula you need.
Hope this helps.
Rob
AORKS for me too, Rob