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The Internal Rate of Return or IRR calculation put simply measures the average
annual
yield on an
investment. For an income producing property, the
internal rate of return or IRR
calculation uses the initial amount invested in the property, a series
of projected cash flows which are usually after-taxes, and a
projected After-Tax Sales Proceeds amount in a given year.
Lets look at an example.
If we were
calculating the internal rate of return for an income
producing property 5 years in the
future, we would use the Initial Investment amount or the amount
of money put
down on the property, the projected After-Tax Cash Flows for each of the
five future years and the anticipated After-Tax Sales Proceeds in year five,
the final year, to calculate an average annual return
on our initial investment amount over the five year
period.
The On Target real estate
model calculates an After-Tax IRR in years 1 through 10 using this method.
You should be aware of the following when using the IRR
(internal rate of return) to measure the return on an investment. If
in year 5, you have a return of 20 %, the internal rate of return
calculation assumes that you made 20% on your cash flows for each of
the five years. You may or may not be able to make 20%
on your cash flows.
The IRR calculation
can therefore
sometimes greatly
exaggerate your average return on an investment.
The On Target real estate model also calculates a MIRR, or modified internal
rate of return.
When calculating the MIRR for Future Wealth with the On Target real estate model, we allow you to
enter what rate of return you
think you will make on your cash flows. The MIRR for Future Wealth can therefore
provide a more accurate return on cash flows for
each year since you determined the interest rate at which the
cash flows get ran forward at.
The On Target 3.01 real estate analysis software calculates both
an internal rate of return and a modified internal rate of return.
The internal rate of return is calculated for each year over a ten
year period and is based on investor growth rate assumptions for
income, expenses and appreciation. The internal rate of return
values and other important real estate investment ratios are
summarized on the On Target Ratio Analysis report. You
can purchase a copy of the On Target software for only $97.95 by clicking on
Purchase
Software
For a detailed description of On Target features, go to
Software Features The On
Target real estate software includes a 30 day money back guarantee
and free support. (c)
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