Why is IRR important and what does it mean for real estate?
The IRR is an important component of the investment homes submitted by Property Professional to real estate investors. But what is IRR and why is it so important?
What does IRR mean?
IRR stands for Internal Rate of Return and is used to calculate the expected return on an investment. The IRR takes into account the moments when money is received with regard to the investment. IRR takes account of the fact that a certain return can be achieved on the sum to be paid out during the term of the investment. IRR does not take external factors such as inflation or interest rates into account.
In order to determine the value of incoming cash storms, a percentage is used, which is also called interest or yield. In other words, the monthly rental income divided by the purchase amount. This return depends on several factors, such as tax, maintenance, management, vve, and leasehold. A small difference can already influence the return to be achieved.
The IRR is therefore the average interest rate that also takes into account the value of the cash flow, and not just the investment, which is the case with ROI.
By looking at the IRR, the investor can therefore make a better decision as to whether the property investment is interesting to invest in.
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