What The IRR Metric REALLY Means For Real Estate Investors

What The IRR Metric REALLY Means For Real Estate Investors // The internal rate of return, or IRR, is one of the most widely used metrics in all of commercial real estate, but this also tends to be one of the least easily understood.
The textbook definition of the IRR is, “The discount rate at which the net present value of a set of cash flows is equal to zero,” which most likely won't mean anything to you if you're not coming from a finance background.
But if you’re looking to land an analyst or associate role in real estate private equity or brokerage, trying to raise capital from equity partners to fund your own deals, or even considering investing passively in a crowdfunding or syndication opportunity, being able to both understand and interpret this metric is extremely important in the decision-making process.
So to help make this topic a little bit more clear and to give you some context around why this metric matters so much in this industry, in this video, let’s talk through what an IRR actually represents, the applications of this metric on real estate investment analysis specifically, and how the internal rate of return can impact the entire commercial real estate market (on a very large scale).
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🕒 Timestamps 🕒
0:00 Introduction
1:18 Contribution & Distribution Timing Matters (a LOT)
4:21 Why (& How) IRR Values Impact Pricing
7:28 Be Wary of Sponsor Incentives
9:46 How To Build Your CRE Finance Knowledge
#commercialrealestateinvesting #realestatefinance
*Nothing in this video should be construed as tax, legal, accounting, valuation, or financial advice or recommendation. All information in this video is intended solely for educational purposes, and you are advised to consult with your own personal professional advisors regarding your personal investment decisions.
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[@BreakIntoCRE]

Any other return metrics or CRE finance topics you want to see covered in a more in-depth video on the channel?

[@timothybracken1728]

Yes, discount to replacement cost or just simple replacement cost.

[@magicalthinkingcommu]

I'm interested in leveraging storage units. Would you be able to lay out the metrics for investing in storage units with an indefinite hold?

[@todmann67]

Waterfall hurdles based on cash return and other ways of representing value to the investor, like todays video.

[@nkiser6682]

Moic

[@sophiamaryiam6608]

yield metrics

[@byronrich2780]

I love your videos and lectures. So straight forward and understandable

[@laurentpedrini3783]

Always very helpful and clear videos, thanks for sharing !

[@davidroldan6007]

Excellent video, Justin!!!

[@eddierosario1537]

Great video!!

[@mfourmanagement9440]

Freaking Awesome! Thank you!

[@davidepetretta8660]

Copying this comment from one of your other videos as this seems to be the more appropriate place for it as it make help other viewers:
Love your videos and modelling classes Justin, keep up the great work. Quick question on IRR v. CoC......IRR obviously needs a future disposition in order to yield a useful metric. If you plug a very large hold period into the models, unlevered return becomes negative. Would you just use something like Stabilized Yield on Cost to assess the value of a deal in this situation or is there a better metric for properties with a long-term hold?

[@harrybelshaw9471]

Thanks. Really clear video. Are able to share the excel template?

[@allengarzoneii453]

Is this an old video? Wondering about the 4% - 4.5% interest rates

[@marketmr5161]

You are a god..

[@crypherpunk5570]

Hi, can u share the excel file? Excelente video!

[@rahulkashyap29]

yes, please!

[@andrewcohen8627]

Great video!!!!