IRR is probably a metrics used more used by business managers to evaluate a rational return so that they can estimate the margins that they can earn, the interest financing upper bound they need to keep down to.
IRR tries to force the net present value of the asset/security to zero.
An IRR of 10% on a property with a land lease of 20 years means that for 20 years the annual returns on the property is 10% for 20 years.
The higher the IRR the better, all else being equal.
Plan business decisions
If you know the IRR is 10%, you can go ahead to think realistically:
- if you have floating rate financing at 2% for 8 years what is your return
- In worse case if its fixed rate at 4.5% for 8 years what is your return
- what are the additional “costs” that can be embedded in (Read more...)
...