How much do you truly know when it comes to IRR? Dealing with return on investment real estate can get pretty tricky when you don’t know all the ins and outs of the industry. Luckily, the experts at Luxe Crowdfunding are here to help clear the air. Our real estate crowdfunding will make sure you know all need to know about IRR and what that tells you about your real estate investment. We are available to everyone in the United States.
What Is IRR?
IRR is the average annual return an investor can expect to receive over a certain amount of time, given a corresponding amount of cash flows. Simply stated, the Internal rate of return (IRR) for an investment is the percentage rate earned on each dollar invested for each period it is invested. IRR is also another term people use for interest. Ultimately, IRR gives an investor the means to compare alternative investments based on their yield.
The cash flows, of course, can be partitioned into two categories:
- Cash Flow from Rent
- Cash Flow from Sale of Investment Property
Partitioning the IRR is a 4–step process:
- Calculate IRR based on property cash flows
- Calculate the Total Present Value of the cash flows using IRR as the discount rate
- Divide the PV of Cash Flow from Rent by Total PV
- Divide the PV of Cash Flow from Sale by Total PV
What Does This Mean For Return on Investment Real Estate?
Investors are more certain in projecting cash flows that will stem from their existing leases.
There is more uncertainty surrounding the projected cash flow from the sale, given that in most cases, it will depend on a forward NOI and an assumed Cap Rate. The value of the partitioned IRR lies in its separation of the more certain cash flow (rent roll) and the less specific cash flow (projected sale).
Making the final investment decision should not depend solely on a return statistic. It is instructive to see what the return is actually composed of. Partitioning the IRR allows us to do this – it gives us the details needed to see the big picture.
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Luxe Crowdfunding is an investment management platform engaged in private equity and alternative investments across a range of real estate asset class, including multifamily, senior housing, and storage.
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We are the ones to turn to when it comes to return on investment real estate. If you are interested in learning about real estate crowdfunding or even some more details about real estate investing be sure to call us today! We are one of the best real estate crowdfunding sites. Here at Luxe Crowdfunding, we are entirely here for you. Our investing experts have the best expertise in the United States. We endeavor to excel in every service we provide, adding value for our investors wherever possible, and thereby succeeding nationally in the construction industry. We offer the best crowdfunding real estate investing services.