IRR Calculator for Real Estate
Levered and unlevered IRR, equity multiple and year-by-year cash flow for a buy, hold and sale — or enter your own cash flows below.
| Year | NOI | Debt service | Cash flow | Sale proceeds | Total |
|---|---|---|---|---|---|
| Year 0 | — | — | — | — | -$1,295,000 |
| Year 1 | $245,000 | -$177,067 | $67,933 | — | $67,933 |
| Year 2 | $252,350 | -$177,067 | $75,283 | — | $75,283 |
| Year 3 | $259,921 | -$177,067 | $82,853 | — | $82,853 |
| Year 4 | $267,718 | -$177,067 | $90,651 | — | $90,651 |
| Year 5 | $275,750 | -$177,067 | $98,682 | $1,664,348 | $1,763,030 |
How it is calculated
0 = CF₀ + CF₁ ÷ (1 + IRR) + CF₂ ÷ (1 + IRR)² + … + CFₙ ÷ (1 + IRR)ⁿ
The IRR is the one discount rate at which the money going in and everything coming back are worth the same today — the rate that makes the net present value zero. No formula isolates it, so it is found by search: try a rate, see whether the result is above or below zero, and narrow the range until it balances. A spreadsheet’s IRR function does the same thing and gives the same answer.
- CF₀
- Year-0 cash flow: the equity invested, as a negative number.
- CF₁…CFₙ
- Each year’s cash flow after debt service; the last includes the net sale proceeds.
- Levered
- With the loan: equity in, cash after debt service, sale after the payoff.
- Unlevered
- As if bought with cash: the full price in, NOI each year, the sale after costs.
A worked deal example
A $3,500,000 purchase earning $245,000 of NOI (a 7.00% cap rate), financed at 65% loan-to-value and 6.75%, held 5 years with income growing 3.0% a year and sold at a 7.25% cap rate.
- Equity in
- $1,295,000
- Hold
- 5 years
- Exit cap rate
- 7.25%
- Levered IRR
- 10.88%
- Equity multiple
- 1.61x
The equity going in is $1,295,000, including $70,000 of closing costs. After $177,067 a year of debt service the first year pays $67,933, a 5.25% cash-on-cash return. The sale brings $3,917,547; after $117,526 of selling costs and a $2,135,672 loan payoff, $1,664,348 comes back. In all the deal returns 1.61x the equity — $784,750 of profit — for a levered IRR of 10.88% against 8.34% unlevered. The 6.75% rate is below the property’s 8.34% unlevered return, so borrowing raised the IRR — even though year-one cash-on-cash, at 5.25%, sits below the 7.00% cap rate. The gain comes from growth and the sale, not the early cash.
Frequently asked questions
How do you calculate IRR?
What is a good IRR for real estate?
What is the difference between levered and unlevered IRR?
What is an equity multiple, and how is it different from IRR?
Is IRR the same as cash-on-cash return?
IRR by exit cap rate and hold period
The exit cap rate is the assumption that moves an IRR most, because it prices the sale — usually the largest single cash flow. On the default deal, selling at 6.75% instead of 7.25% lifts the five-year levered IRR to 13.88%; selling at 7.75% drops it to 7.96%. A longer hold dilutes the effect, because more of the return arrives as annual cash flow.
| Exit cap rate | 3-year hold | 5-year hold | 7-year hold | 10-year hold |
|---|---|---|---|---|
| 6.75% | 13.76% | 13.88% | 13.76% | 13.49% |
| 7.00% | 10.82% | 12.37% | 12.83% | 12.96% |
| 7.25% | 7.93% | 10.88% | 11.91% | 12.45% |
| 7.50% | 5.08% | 9.41% | 11.02% | 11.95% |
| 7.75% | 2.25% | 7.96% | 10.13% | 11.46% |
Same purchase, loan and 3% income growth in every cell; only the exit cap rate and the hold change.
What an IRR leaves out
- It assumes the cash flows are reinvested at the IRR. A 20% IRR on a short deal says nothing about what the money earns once it comes back. The equity multiple is the check: a high IRR on a low multiple is a fast, small win.
- Flows that turn negative again can have two IRRs. A capital call in a later year can give the equation more than one answer. When it does, read the multiple and the profit, and treat any single IRR with suspicion.
- It is before tax. Depreciation, interest deductions and the tax on sale can move the after-tax return a long way from these figures. Take that to an accountant.
Related calculators
Estimates only. This calculator is an educational tool, not financial advice, a loan offer, or a commitment to lend. Actual payments, loan sizing and closing costs depend on your lender's underwriting, the day-count convention in your loan documents, and fees not modeled here. Confirm any figure with your lender or advisor before acting on it. For an official reference, see Commercial Real Estate Lending (Comptroller’s Handbook, Office of the Comptroller of the Currency).