IRR is the discount rate at which the net present value of all cash flows — purchase, rent, capex, sale — equals zero. Unlike ROI, it correctly weights when cash flows occur, which matters for property where inflows and outflows are irregular across years.
NPV at the IRR discount rate
0
Cash-flow years typically modelled
5+
Strong Indian residential IRR band
10–14%
Calculator to solve it — no manual iteration
1
What the data says
IRR solves for r in: 0 = Σ [CFₜ ÷ (1+r)ᵗ], where CF₀ is the negative initial outlay and CFₜ are net cash flows (rent minus expenses, plus sale proceeds in the final year).
Worked example: outlay ₹1 Cr in Year 0, net rent of ₹3L, ₹3.2L, ₹3.4L in Years 1–3, and sale proceeds of ₹1.35 Cr in Year 3 (net cash flow ₹1.383 Cr). Solving iteratively gives an IRR of roughly 11.8%.
IRR correctly penalises capital that sits idle early (e.g. a long construction-linked payment plan) in a way that simple ROI cannot, because it discounts each cash flow by the time it actually occurs.
Skip the trial-and-error iteration and model your own cash flows at /knowledge/calculators/irr.
How EstateVeda executes this
List every cash outflow and inflow by year, including part-payments, rent, capex and exit proceeds.
Feed the year-wise series into an IRR solver rather than approximating with average annual return.
Sensitise the exit price and holding period, since IRR is highly sensitive to both.
Compare the resulting IRR against your cost of capital or alternative-asset hurdle rate.
Risks we underwrite against
Manual IRR approximation using simple averaging materially misstates return when cash flows are front- or back-loaded.
An optimistic terminal sale price is the single biggest driver of an inflated IRR — always stress-test it.
EstateVeda verdict
Use IRR, not simple ROI, whenever a property has staggered payments (construction-linked plans, phased capex) or rental income spread unevenly across the hold.
Frequently asked questions
Why use IRR instead of ROI for property?
IRR accounts for the timing of each cash flow, so a rupee received in Year 1 is worth more than a rupee received in Year 5. ROI ignores timing entirely, which distorts comparisons across payment-plan structures.
What IRR is considered good for Indian real estate?
An IRR of 10–14% is a strong outcome for Indian residential property over a 5–7 year hold; IRRs above this typically involve either high leverage or elevated risk.
Can IRR be negative?
Yes — if total cash inflows (rent plus sale proceeds) fail to exceed the initial outlay in present-value terms, the IRR will be negative, signalling a loss-making investment.