IRR (internal rate of return)

The discount rate that makes the net present value of all cash flows equal to zero.

IRR is the annualized return that fully accounts for timing — early cash flows matter more than late ones. For real estate, IRR captures cash flow, principal paydown, appreciation, and exit proceeds in a single number. The downside: IRR can be misleading when comparing deals with very different durations or when intermediate cash flows are reinvested at lower rates.