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Real estate investment is one of the most profitable forms of investment that people can make. However, it is essential to evaluate a real estate investment deal before committing your money. Investors use several metrics to evaluate real estate investments, one of which is the Internal Rate of Return (IRR). IRR is a measure of an investment’s profitability, and it is used to estimate the future cash flows generated by an investment.

IRR is an essential metric for real estate investors because it helps them understand the potential return on their investment over a specific period. For example, an IRR of 20% means that the investment generates a 20% annual return. By contrast, a 5% IRR means that the investment generates a 5% annual return.

To understand how to use IRR to evaluate a real estate investment, consider this example: Suppose you are interested in investing in a multi-family property that costs $1,000,000. You plan to rent the property to tenants and sell it after five years.

Assuming that the annual rental income is $100,000, and the operating expenses (excluding debt service) are $40,000 per year, the property’s net operating income (NOI) is $60,000 per year.

Let’s assume that you finance the purchase with a $750,000 loan at a 5% interest rate for five years. At the end of the five-year period, you sell the property for $1,250,000.

Using these assumptions, we can calculate the property’s IRR. The IRR takes into account all of the cash flows associated with the investment, including the initial investment, the annual cash flow, the debt service, and the final sale proceeds.

After calculating the investment’s cash flows, we find that the property’s IRR is 15%. This means that the investment generates a 15% annual return over the five-year period.

IRR is a critical metric for real estate investors because it considers the time value of money, which means that it factors in the investment’s cash flows over time. This is important because an investment that generates a high return in the short term may not necessarily be the best investment over the long term.

In summary, IRR is a powerful tool for evaluating real estate investments. By calculating an investment’s IRR, investors can understand its potential profitability over a specific period. While there are other metrics to consider, IRR provides a comprehensive picture of an investment’s potential return.

If you’re interested in learning more about how to evaluate real estate investments using IRR, or if you’re looking to invest in a real estate deal, contact us today to schedule a call! We’ll help you navigate the world of real estate investing and find the best deals to maximize your returns.

About Jacky Fils:

Who am I? I am a Real Estate Investor & Entrepreneur who happens to be a physician. I have chosen this path after understanding very well the in’s & out’s of above-average return on investment (ROI), backed by a solid asset, Real Estate. I have been actively investing in real estate in the western Massachusetts area for a number of years. My mission is to provide quality housing for quality tenants, while at the same time providing an above-average return on investment (R.O.I) for our investor partners. It is truly a win-win-win way of investing!

Jacky offers his investor partners hands-free investment opportunities. If you are interested to learn how to earn an above-average return on your investment, backed by a solid asset, and without the hassle of being a landlord, please contact Jacky.

For more information about Jacky and his investment program,
please call 857-800-1237 or visit https://jackyfils.com/