Internal Rate of Return and Real Estate




Internal Rate of Return
Knowledge Center

Translate

Forum
8
Craig Sanders, USA

Internal Rate of Return and Real Estate

As an example if an owner puts up $7,500,000 equity to buy an office building. After 10 years it threw of $7,000,000 of cash flow. The owner wants to turn the project over to a management company to manage. If IRR is used to see how well the manager does what is considered the equity investment to use at the starting point in year 11?
 
Comments

Rating

 
0
Leon Ploubidis
Manager, Australia
 

Opportunity Cost

It needs to be the market value at the time, not the original purchase price. In Capital Budgeting, we need to account for Opportunity Cost in the cash flows, and this includes the value you could sell the property for today. So, to break down, the current market value is essentially the original purchase price, plus the opportunity cost.

   

More on Internal Rate of Return:
Summary
Discussion Topics
Internal Rate of Return (IRR) versus ROE versus ROA
🥇 Internal Rate of Return (IRR) Formula
🥈 Calculating Internal Rate of Return
Flat Rate versus Internal Rate of Return (IRR)
Calculating the Rate of Return
👀Internal Rate of Return and Real Estate
TVM versus Internal Rate of Return (IRR)
Internal Rate of Return (IRR) Based KPIs
Internal Rate of Return (IRR) in Real Value?
🥉 Weaknesses of Internal Rate of Return (IRR)
🔥 Advantages of Internal Rate of Return (IRR) Method
Special Interest Group

Do you know a lot about Internal Rate of Return? Become our SIG Leader

Internal Rate of Return
Knowledge Center



About 12manage | Advertising | Link to us / Cite us | Privacy | Suggestions | Terms of Service
© 2023 12manage - The Executive Fast Track. V16.1 - Last updated: 2-6-2023. All names ™ of their owners.