What is the IRR formula and why it matters for real estate investments

When investing in real estate, you’ll want to know if you’re going to make a profit from your holdings.

Unfortunately, it’s not as simple as it sounds to figure out. One of the best ways to understand if you will get a good return on your property is to use the Internal Rate of Return (IRR) formula, which is used across several industries including real estate.

What is the IRR formula?

The IRR formula helps investors understand their yearly earnings. Its result is based on a percentage of the investor’s original investment and what they hope to one day sell the home for. Essentially, it’s a formula that helps investors realize what they’ll earn overtime on their investment. This result can be used to compare to see if they will earn more in a particular real estate investment versus putting their money in a more traditional investment or a different property.

Find out more on Stessa’s blog.