Real Estate Investment Software
 

Real Estate Investment Software

Quick and Easy Analysis
Real Estate Software & Rental Property Software

866-290-4183

Follow Us on Twitter

HomeAnalysis SoftwareSeminars & BooksTutorialsTestimonialsSupportBlog!Prices

Landlord's
Cash Flow Analyzer

Up to 20-Year Analysis

Software Features
Screen Shots and Reports
Partner Analysis Module
IRA, Roth, 401(k) Module

Order and Download

Flipper's Rehabber's
Software

Monthly Analysis

Flipper Software
Software Features
Screen Shots and Reports
Order and Download


Software Upgrades


Testimonials and Reviews
Tutorials
LIVE Analysis Classes


Canada and Australia

Canadian Version
Australian  Version



 

Definitions


Internal Rate of Return

Modified Internal Rate of Return (MIRR)

Net Operating Income (NOI)

Loan to Value Ratio (LTV)

Cash on Cash Return

Cash on Cash with Equity

Capitalization Rate

Gross Rent Multiplier (GRM)

Debt Coverage Ratio (DCR)

Real Estate Terms

Internal Rate of Return IRR


When you have an investment that creates differing amounts of annual cash flow, you need to determine your rate of return using the Internal Rate of Return (IRR).   The formula for computing the IRR is very complicated but essentially IRR is the rate needed to convert (or discount or reduce) the sum of the future uneven cash flow to equal your initial investment or down payment.

Internal Rate of Return - Real Estate
What is Internal Rate of Return (IRR)?
(Practical Discussion and Examples)
 
View Tutorial


A very simple example is say that you invest $50.

The investment has cash flow of $5 in year 1, and $20 in year 2.  At the end of year 2, the investment is liquidated and the $50 is returned.

The total profit is $25 ($5 Y1 and $20 Y2).

Simple division would say that the return is 50% ($25/50). But since time value of money (two years in this example) impacts return, the IRR is actually only 23.43%.

If we had received the $25 cash flow and $50 investment returned all in Year 1, then yes, the IRR would be 50%. But because we had to "spread" the cash flow over two years, the return percentage is negatively impacted.

The timing of when cash flow is received has a significant and direct impact on the calculated return.  In other words, the sooner you receive the cash, the higher the IRR will be.

Let's take the above example, but reverse the cash flow.

$20 Y1 and $5 Y2.

We still received $25 in profit, but because we received more of the cash flow sooner, the IRR goes from 23.43 to 26.77%.

Another way to look at it is the internal rate of return (IRR) is the discount rate at which the "net" present value of future cash flows is zero (discounted future cash flows = starting investment amount).  The "net" meaning you subtract your initial investment.

Leveraged vs. Unleveraged IRR

When you use debt to purchase a property, then you are using leverage.  The Cash Flow Analyzer software computes your IRR based on how debt impacts your cash flow.  The software automatically backs out interest and debt payments and calculates an Unleveraged IRR assuming 100% down payment. 

You can compare the leveraged and unleveraged IRR's to determine how debt is helping or hindering investment results.

 


Douglas Rutherford, CPA

Know who is behind the
software
before buying!




Read recent reviews
of our software
 


&



Testimonials


Learn Cash Flow Analysis

The Book

Live Class

Real Estate Cash Flow Analysis Course

The Complete Guide to Real Estate Cash Flow Analysis Book



30-Day Money-Back Guarantee
Free technical support

 

RentalSoftware.com,  375 Rockbridge Rd, Suite 172,  Lilburn, GA 30047    866-290-4183

Copyright 1993 - 2014    Cash Flow Analyzer  Flipper's  Rehabber's  Note Buyer  All rights reserved.

Note Buyer's Software l Landlord Software l Tax Lien Software l Real Estate CPA l Landlord Book & Real Estate Forms

Private Money Workshops  Private Money Home Study Course  l  Real Estate Group Formation Manual