IRR

Internal Rate of Return (IRR) is a financial metric that is widely used in capital budgeting and investment planning. It represents the discount rate at which the Net Present Value (NPV) of a series of cash flows equals zero. In simpler terms, the IRR is the rate at which an investment breaks even in terms of NPV.

In the context of real estate investment, the IRR is the rate that makes the present value of the future cash flows (rental income, eventual sale proceeds, etc.) equal to the initial investment in the property. It's essentially the annualized return you would earn on an investment if you held it for a certain period and if future cash flows were reinvested at the same rate.

The IRR can be used to evaluate and compare the profitability of different investments. Generally, the higher the IRR, the more attractive the investment. However, it's important to consider other factors as well, such as the risk associated with the investment, the investor's required rate of return, and the potential for future cash flows to vary from the forecast.

Keep in mind that the IRR calculation assumes that all future cash flows are reinvested at the same rate, which may not always be realistic. Additionally, if an investment has cash flows that change direction more than once (positive to negative, or vice versa), there may be multiple IRRs, which can make interpretation tricky. These are just a few reasons why it's important to use the IRR in conjunction with other financial metrics when evaluating investments.