IRR Calculator
Internal rate of return, next to the equity multiple and MIRR — because the three disagree about which deal is better, and the disagreement is the useful part.
The investment
Annual distributions
The exit proceeds are added to the final year. Enter a negative distribution for a year that required a capital call.
Assumptions
IRR
13.05%
Over 5 years
Equity multiple
1.75×
$75,000 of profit on $100,000
| MIRR | 12.55% |
|---|---|
| Total distributions | $175,000 |
| Total profit | $75,000 |
| NPV at 8.00% | $22,924 |
| Payback | Year 5 |
Estimates only, from the cash flows you entered. A projected IRR is a forecast about distributions and an exit price that have not happened. Not investment advice.
IRR measures speed. The multiple measures money.
Internal rate of return is the discount rate at which a deal’s cash flows net to zero. It is the right tool for a real question — how hard did my capital work, accounting for when it came back — and it is routinely used to answer a question it cannot: which of these two deals made more money.
The problem is that IRR is exquisitely sensitive to time. Get your money back quickly and the rate looks superb, whether or not much money came back. Try it above: shorten the hold to two years, delete the interim distributions, and set the exit so the total profit is clearly worse. The IRR goes up. It is not wrong — capital genuinely was returned faster — but a 25% two-year deal can leave you with less than a 15% seven-year deal, and IRR alone will never tell you that.
Which is why the equity multiple sits beside it here and neither appears without the other. The multiple is total distributions over total invested, and it is indifferent to timing. Read together they answer both questions: the multiple says how much, the IRR says how fast. A deal that looks good on both is good. A deal that looks good on one is being sold to you on that one.
The second issue is subtler and affects every IRR you have ever seen. IRR assumes that every distribution is reinvested at the IRR itself. If a deal projects 18%, the arithmetic presumes each distribution also compounds at 18% until exit. You almost certainly cannot do that — if you could reliably deploy capital at 18%, you would not be evaluating this deal.
MIRR removes the assumption. It asks what you would actually earn on distributions, future-values the inflows at that rate, present-values the outflows at your cost of capital, and takes the root. On the default scenario IRR is about 13.05% and MIRR about 12.55%. The gap is modest here because the distributions are small relative to the exit; on a deal throwing off substantial cash it is much wider, and the IRR much more flattering.
Two failure modes worth knowing. Some cash flow patterns have no IRR at all — if every flow is negative there is nothing to solve for, and this tool says so rather than returning a number that a solver happened to stop on. And flows that change sign more than once can have several valid IRRs, which is a real mathematical property rather than a bug. The tool flags it; in that situation lead with MIRR.
For the cash flows themselves, the rental property calculator will build a defensible annual figure, and the BRRRR calculator handles a refinance mid-hold.
Methodology
- NPV = Σ CFₜ ÷ (1 + r)ᵗ, with the equity going in as a negative flow at time zero and the exit proceeds added to the final year.
- IRR is the rate where NPV is zero, found by bisection between −99.99% and 1000%. Bisection rather than Newton because it cannot diverge: given a sign change it always converges. No sign change means no solution, and that is reported rather than papered over.
- MIRR future-values positive flows at the reinvestment rate, present-values negative flows at the finance rate, and takes the nth root of the ratio.
- Equity multiple = total distributions ÷ total invested. Payback is the first year cumulative distributions clear the investment.
This is the one calculator on the site that works in floating point rather than exact rationals, because IRR has no closed form and must be solved numerically. That is appropriate here — IRR is a rate rather than a currency amount, and the cash flows feeding it are still exact integer cents.
Excluded: taxes, depreciation recapture, financing at the fund level, fee waterfalls, and any distinction between return of capital and return on capital. Annual periods are assumed; monthly or quarterly distributions would produce a slightly different figure.
Frequently asked questions
- What is IRR in real estate?
- The discount rate at which the net present value of a deal's cash flows equals zero. Practically, it is the annualized return that accounts for both how much you receive and when — a dollar in year one is worth more than a dollar in year five, and IRR is the measure that prices that difference.
- Why is IRR misleading on its own?
- Because it rewards speed rather than size. A two-year flip returning 25% has a higher IRR than a seven-year hold returning 15%, while putting far less money in your pocket. IRR answers 'how efficiently did capital work', not 'how much did I make'. That is why the equity multiple sits next to it here and neither is shown alone.
- What is the difference between IRR and MIRR?
- IRR quietly assumes every distribution is reinvested at the IRR itself. If a deal returns 18%, the arithmetic presumes each distribution also earns 18% until exit, which is almost never true. MIRR asks you to state a real reinvestment rate and a real cost of capital, then computes the return on that basis. It is nearly always lower, and nearly always more honest.
- What is a good IRR for a real estate deal?
- There is no universal answer, and any specific number is a market and a moment rather than a rule. The useful comparison is against what the same money could earn passively, adjusted for how much more risk and work this deal involves. A projected IRR is also a forecast about distributions and an exit price that have not happened — the confidence interval around it is wide.
- Why does the calculator sometimes say there is no IRR?
- Because for some cash flow patterns none exists. If every flow is negative, no discount rate makes the present value zero — there is nothing to solve for. The tool reports that plainly rather than returning a fabricated number, which is what most spreadsheets do when their solver fails to converge.
- What are multiple sign changes?
- When cash flows go negative, positive, then negative again — a capital call mid-hold, for instance — the equation can have several mathematically valid roots. There is genuinely more than one IRR. The tool flags it when it happens, and in that situation MIRR is the number to lead with.
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