IRR- You Can Eat It

IRR is short for Internal Rate of Return. It's a metric (hypothetical) that is used to estimate profitability. You'll always see it if you look at enough syndicator track records and deals. It's almost always the first thing that is promoted on a passive real estate deal.

The issue is that some people make the mistake of simply looking for the highest IRR deal to invest in. But using the IRR alone isn't enough. It's helpful to understand the time value of your money, but it doesn't ne

cessarily tell you about the ultimate... cash in your pocket and cash flow throughout the deal. IRR can't necessarily be used to pay your mortgage, fund a vacation, or allow you to cut back on work.

That's why Howard Marks of Oaktree Capital famously said the words, "You can't eat IRR."

It's more important to focus on generating actual cash flow that can sustain your lifestyle rather than just aiming for high IRR numbers on investments. That will allow you to create income-replacing, long-lasting, security-producing, dream-fulfilling wealth.

If there's one piece of advice, I can tell you - when looking at a deal, figure out how they came up with the projected IRR. See if it seems reasonable or if it was manipulated to make the deal seem attractive. Does it seem conservative or aggressive? Some sponsors do not provide all their assumptions for an informed decision. Then see whether this IRR will fit your goals.

I’m not saying to totally ignore the projected IRR or multiple - focus more on the contractual cash flow to investors at closing and the business plan to increase the income

Real estate investment has long been a cornerstone of financial success, with approximately 90% of millionaires attributing their wealth in part to real estate holdings. In this article, we delve into the reasons why real estate is a preferred vehicle for creating millionaires and how you can leverage its potential.