For each year of the hold period: Year 0 : equity invested (down payment + closing costs) — a negative cash flow. Years 1 to N-1 : NOI − debt service (interest + principal) = annual cash flow. Year N (sale year) : annual cash flow PLUS sale proceeds (exit value × (1 − selling costs) − remaining loan balance). IRR is the rate that, when applied to discount these cash flows back to year 0, sums to zero.

5–10% IRR — Core / stabilised assets, low leverage. Pension funds and insurance companies operate here. 10–15% IRR — Core-plus / stabilised with moderate leverage. Most retail buy-to-let. 15–20% IRR — Value-add / mild repositioning. Renovation + lease-up plays. 20%+ IRR — Opportunistic / development. Construction or major repositioning, higher execution risk. These are required returns — what investors demand to take the underlying risk. If your modelled IRR is below the range for the risk class, you're underpaid for the risk.

Anchoring on a generous exit cap. "It'll trade at a 5% cap when I sell" is an optimistic statement disguised as a calculation input. Default to entry cap + 50bps unless you have specific reasons to expect compression. Modelling perfect occupancy. NOI growth should already net out vacancy assumptions. Treating it as pure rent growth produces optimistic NOI trajectories. Ignoring CapEx. Major roof replacement in year 6 isn't in NOI — it's a CapEx line. This model accepts it through the NOI input (subtract reserves), but a serious underwriting models out CapEx events explicitly. Misreading IRR. IRR is an annual compound return, not "total return over N years." A 15% IRR over 7 years means each dollar of equity has grown to $2.66 (1.15^7), not 1.15. Equity multiple is the easier mental model for that. Multiple IRRs. Cash flow streams that change sign more than once (negative in year 4 for a renovation, positive again in year 5) can produce multiple IRR solutions. Newton's method finds one; bisection finds another. For real estate with single sign change, this isn't an issue. Refinancing not modelled. Mid-hold refis that return equity to investors can boost IRR dramatically. This model assumes single-loan-to-exit; for refi scenarios, build the cash flow stream manually. Pre-tax only. Depreciation deduction, mortgage interest deduction (if applicable), and capital gains tax at exit all materially affect after-tax IRR. The model is pre-tax. Subtract your marginal tax rate × the relevant base for a rough after-tax estimate.

cap-rate — for the single-year unlevered view. noi-calculator — to produce the year-1 NOI input. mortgage-affordability-calculator — sanity-check loan terms against the property's DSCR. rental-yield — the percentage version of cap rate for European-convention reporting.

Property IRR Calculator

Compute the levered IRR + cash-on-cash + equity multiple over a property hold period. Year-0 down payment, year-by-year cash flows, exit sale proceeds. Browser-only.

Levered IRR is very sensitive to the exit cap rate assumption. Test multiple exit caps to see the range of plausible outcomes. Pre-tax model — does not adjust for depreciation recapture or capital gains tax.

🏠 Acquisition

Purchase price

Closing costs (% of price)

Down payment (%)

Currency symbol

💳 Financing

Loan rate (% APR)

Amortisation period (years)

Interest-only? (years)

📈 Operating + Exit assumptions

Year-1 NOI (annual)

NOI growth (% / year)

Property appreciation (% / year)

Hold period (years)

Exit cap rate (%) — leave 0 to use appreciation only

Selling costs (% of exit price)

Result

What is property IRR?

The Internal Rate of Return is the discount rate that makes the net present value of a project's cash flows equal to zero. In real estate, that means: "given the equity I put in today, the cash flow I receive each year, and the net proceeds when I sell, what annualised compound return am I getting?" It's the single most rigorous yardstick in real-estate analysis because it captures four things at once — appreciation, cash flow, leverage, and time.

How the model works

For each year of the hold period:

Year 0: equity invested (down payment + closing costs) — a negative cash flow.
Years 1 to N-1: NOI − debt service (interest + principal) = annual cash flow.
Year N (sale year): annual cash flow PLUS sale proceeds (exit value × (1 − selling costs) − remaining loan balance).

IRR is the rate that, when applied to discount these cash flows back to year 0, sums to zero.

The exit value question

You have two options:

Appreciation-only (set exit cap = 0): exit price = purchase price × (1 + appreciation%)^N. Simple but oversimplified.
Exit cap rate: exit price = (NOI in year N+1) ÷ (exit cap rate). More realistic for commercial-style analysis — captures the idea that the buyer at exit will pay a multiple of forward NOI, not a multiple of today's price.

The exit cap rate is the most consequential single assumption in your model. Test ±50bps in each direction: if a 50bp move in exit cap swings IRR by 4+ percentage points, you're underwriting a cap-rate bet, not an operating bet. Common practice: assume exit cap = entry cap + 50bps (cap rate expansion bias), which is conservative.

Typical IRR ranges

5–10% IRR — Core / stabilised assets, low leverage. Pension funds and insurance companies operate here.
10–15% IRR — Core-plus / stabilised with moderate leverage. Most retail buy-to-let.
15–20% IRR — Value-add / mild repositioning. Renovation + lease-up plays.
20%+ IRR — Opportunistic / development. Construction or major repositioning, higher execution risk.

These are required returns — what investors demand to take the underlying risk. If your modelled IRR is below the range for the risk class, you're underpaid for the risk.

IRR vs cash-on-cash vs cap rate

Cap rate — single-year unlevered: NOI ÷ price. Doesn't capture financing or appreciation.
Cash-on-cash — single-year levered: after-debt-service cash ÷ equity invested. Captures financing but not appreciation or time.
IRR — full-period levered, includes appreciation, debt amortisation, and the exit. Captures everything but is sensitive to assumptions.
Equity multiple — total distributions ÷ equity invested. Same data as IRR but ignores time. A 2× multiple in 10 years (7.2% IRR) and 2× in 3 years (26% IRR) look identical here — that's why IRR matters.

Interest-only loans

IO loans defer principal repayment, boosting early-year cash flow at the cost of debt amortisation. Useful for stabilisation periods (year 1–3) where you want to maintain DSCR while NOI is still growing. The model accepts an IO period; after it ends, the loan re-amortises over the remaining term.

Common pitfalls

Anchoring on a generous exit cap. "It'll trade at a 5% cap when I sell" is an optimistic statement disguised as a calculation input. Default to entry cap + 50bps unless you have specific reasons to expect compression.
Modelling perfect occupancy. NOI growth should already net out vacancy assumptions. Treating it as pure rent growth produces optimistic NOI trajectories.
Ignoring CapEx. Major roof replacement in year 6 isn't in NOI — it's a CapEx line. This model accepts it through the NOI input (subtract reserves), but a serious underwriting models out CapEx events explicitly.
Misreading IRR. IRR is an annual compound return, not "total return over N years." A 15% IRR over 7 years means each dollar of equity has grown to $2.66 (1.15^7), not 1.15. Equity multiple is the easier mental model for that.
Multiple IRRs. Cash flow streams that change sign more than once (negative in year 4 for a renovation, positive again in year 5) can produce multiple IRR solutions. Newton's method finds one; bisection finds another. For real estate with single sign change, this isn't an issue.
Refinancing not modelled. Mid-hold refis that return equity to investors can boost IRR dramatically. This model assumes single-loan-to-exit; for refi scenarios, build the cash flow stream manually.
Pre-tax only. Depreciation deduction, mortgage interest deduction (if applicable), and capital gains tax at exit all materially affect after-tax IRR. The model is pre-tax. Subtract your marginal tax rate × the relevant base for a rough after-tax estimate.

Pairs with

cap-rate — for the single-year unlevered view.
noi-calculator — to produce the year-1 NOI input.
mortgage-affordability-calculator — sanity-check loan terms against the property's DSCR.
rental-yield — the percentage version of cap rate for European-convention reporting.

Worked example

Buy at $400,000 with 25% down and 3% closing costs — that's $112,000 of equity out at year 0. The $300,000 loan at 6.5% over 30 years costs about $22,800/year in debt service, so year-1 NOI of $28,000 leaves roughly $5,200 in cash flow — a ~4.7% cash-on-cash start. IRR then folds in everything cash-on-cash ignores: rising NOI, loan paydown, and the lump sum at sale. For inputs like these a multi-year hold with 3% appreciation typically pushes the IRR into low-double-digits — because leverage and the exit do most of the work, not year-1 yield.

FAQ

IRR, cap rate, or cash-on-cash — what's the difference? Cap rate is a single-year, unlevered snapshot. Cash-on-cash is a single-year, levered snapshot. IRR is the whole hold compressed into one annualised return, including the sale. IRR is the only one that captures timing.

Why does leverage raise IRR? Borrowing lets a smaller slice of equity control the full property's appreciation and paydown. That amplifies return — and, symmetrically, amplifies loss if values fall. A high IRR built on high leverage is a riskier high IRR.

Does it assume I sell? Yes — IRR needs a terminal cash flow, so the model requires an exit year and sale proceeds. Change the hold period or exit assumptions and the IRR moves, sometimes a lot.

What exit costs should I include? Agent commission, transfer taxes and closing on the sale — commonly 5–7% of sale price. They come straight off your proceeds, so leaving them out overstates the return.

How it works

IRR is a time-weighted return: it discounts every cash flow back to today and finds the single rate that makes them net to zero, so a euro received in year one counts for far more than one received in year ten. That is its strength — it captures cash flow, appreciation, leverage, and timing in one figure — but it carries a hidden assumption: IRR implicitly assumes you can reinvest every interim distribution at the IRR itself, which is rarely true. That is why a headline IRR should always be read alongside the equity multiple (total money back ÷ money in), which has no reinvestment assumption, and why short holds can post dazzling IRRs on trivial absolute profit.

Common mistake

Chasing the biggest IRR without checking scale or hold length. A 40% IRR on €20k of equity flipped in ten months is real, but it returns less money than a 12% IRR compounding on €400k for a decade — and IRR says nothing about which you can actually replicate next year. The other trap is the exit cap rate: it is the single most consequential assumption in the model, so test it ±50bps in each direction before you trust the return.

Every IRR model starts from a defensible NOI and an exit priced off a cap rate; for a simpler point-in-time return without the full cash-flow model, use the ROI & CAGR calculator. On why annualised returns mislead over short windows, read ROI vs CAGR — comparing returns honestly.