What is IRR?
The Internal Rate of Return (IRR) is a financial metric used to evaluate the profitability of potential investments, calculated as the discount rate that brings the net present value (NPV) of all cash flows to zero. It’s commonly used in capital budgeting to compare the attractiveness of different projects or investments.
Calculate your projected return
Assuming a 5 year term of investment, enter in an amount you would like to invest and adjust the IRR to see your return.
What is a Good IRR?
You want a positive IRR—a negative IRR indicates you’d lose money on the investment. Generally, an IRR of 18% or 20% is considered very good in real estate.
Generally speaking, a high percentage return (greater than 10%) indicates a successful investment, while a low IRR (less than 5%) might mean investors should reconsider their investment options.
How your real estate investments stack up
A REIT: 5-10%
A REIT (real estate investment trust) allows you to invest in a portfolio of properties like a mutual fund. With this
added diversification and stability comes a sacrifice in returns. The IRR for a REIT will generally be lower than a LP or Co-GP fund.
A LP Fund: 15-20%
A LP real estate fund allows you to invest directly in a property (or selection of properties) and benefit from passive income as well as the sale. Due to being closer to the properties and profits, the IRR will generally be higher than that of a REIT.
A Co-GP Fund: 20-25%
Like an LP Fund, a Co-GP Fund will project a higher IRR than a REIT. When investing in a Co-GP Fund however, you invest passively (like an LP) but will receive from the GP’s share of the return. This allows a Co-GP Fund to project a higher IRR and higher return as a result.
Disclaimer
The calculator here is meant solely to be educational and informational tools and are not intended to be, and shall not constitute, investment, legal or tax advice. Colony Hills Capital makes no representations, guarantees or warranties to their accuracy. All results generated by this calculator are hypothetical, may not reflect the actual growth or profits of any investment made, and are approximations. We are not responsible for the consequences of any decisions or actions taken in reliance upon or as a result of the information provided by this calculator. This calculator utilizes assumptions which may not be relevant to your individual situation. Some of the assumptions used in this calculator are contained below, but we make no representations, guarantees or warranties that this list is accurate or exhaustive. Additionally, we make no representations or warranties that the assumptions used in the calculator are accurate, reasonable or market nor that the calculator is free of errors or omissions. All results generated by any calculator may not take into account taxes, fees, costs or expenses. An actual investment may yield different results from any hypothetical results shown and there can be a potential for loss. The calculator shall be used at your own risk. Consult with a financial, legal and/or tax professional prior to relying on any results provided by any calculator.