Glossary · Australian property
Internal rate of return (IRR).
The discount rate that makes a project's net present value zero. The annualised effective return on a series of cashflows, accounting for time value of money.
IRR is the rate at which a project's discounted cashflows sum to zero (NPV = 0). For a property investment, IRR captures the full sequence: purchase outflow, annual net cashflow (positive or negative), and sale-time outflow plus capital gain.
IRR is more meaningful than gross yield for a hold-and-sell strategy: it weighs early cashflow heavier than late cashflow (time value of money) and captures the lump-sum nature of capital gains at exit. A property with 4% gross yield but 8% capital growth has a roughly 9-11% IRR over a 10-year hold.
We solve IRR from the cashflow vector in our cashflow projector. If the IRR is below your hurdle rate (typically 6-8% for property), the deal doesn't clear. Above your hurdle rate, it does.
Worked example
10-year hold, $200K cash invested at year 0, $5K/year average cashflow loss, $400K net at sale year 10, IRR ≈ 8.2%.
Source
Standard finance formula; computed via Newton-Raphson or bisection in our cashflow projector.
Related terms
Open the playbook — 11 chapters end-to-end, every threshold cited.