IRR Calculator
Handles uneven cash flows up to 10 years
Load a preset scenario or enter your own cash flows
Number of years
Cash flows
Year 0 is your initial investment — enter it as a negative number (e.g. -50000). Years 1 onward are the cash flows you receive. Negative years are additional costs. Positive years are returns.
Internal Rate of Return
0%
annualised return on this investment
Total invested
$0
Total received
$0
Net cash flow
$0
How your IRR compares to common alternatives
Understanding IRR
The honest measure of any investment with complex cash flows
IRR, or Internal Rate of Return, is the discount rate at which the net present value of all your cash flows, both in and out, equals zero. In plain English: it is the true annualised percentage return that your investment is delivering, accounting for when every payment occurs.
What makes IRR more powerful than simple ROI is that it handles investments where cash flows are uneven. A rental property generates different income in different years. A business has high costs upfront and growing revenue later. A stock position might pay dividends irregularly and have a lump sum exit. IRR collapses all of that complexity into a single comparable percentage.
The standard use of IRR is to compare it to your required rate of return or hurdle rate. If your IRR is above your hurdle rate, the investment is worthwhile. If it is below, the same capital deployed elsewhere would serve you better. The benchmark comparison section shows how your IRR stacks up against the most common financial alternatives.
Why IRR beats simple ROI
A simple ROI calculation ignores when cash flows occur. An investment returning $20,000 in year 1 is far better than the same $20,000 returned in year 10, even if the total ROI is identical. IRR captures this distinction by incorporating the time value of money into every cash flow in the series.
The hurdle rate concept
Before evaluating any investment, set your minimum acceptable return, called the hurdle rate. This is usually your cost of capital, your opportunity cost, or the return available from the safest comparable alternative. If the IRR exceeds your hurdle rate, the investment creates value. If it falls below, you are better off putting the money elsewhere.
Real world uses
IRR is used in real estate to evaluate rental property returns including rent, maintenance, and eventual sale. In private equity and venture capital it is the standard performance metric. For individual investors it is useful for evaluating any investment with irregular cash flows including business ownership, lending, and complex structured products.
Frequently asked questions
What people ask about IRR
What is a good IRR?
It depends on the risk of the investment. For real estate, investors often target an IRR of 8 to 15% depending on the market and property type. For private equity and venture capital, target IRRs are typically 20 to 30% to compensate for the illiquidity and higher risk. For public market investments, the relevant benchmark is the S&P 500 at approximately 10% per year. Any investment IRR consistently above 10% after accounting for risk is performing well. An IRR below what you could earn in an index fund should prompt reconsideration.
How is IRR different from ROI?
ROI measures the total percentage return over the full investment period regardless of timing. IRR is an annualised rate that accounts for when each cash flow occurs. A 100% ROI over 10 years has an IRR of about 7.2%. The same 100% ROI over 3 years has an IRR of about 26%. For investments with a single lump sum in and a single lump sum out, ROI and annualised CAGR tell you the same thing as IRR. For investments with multiple cash flows at different times, IRR is the more accurate and informative measure.
What does a negative IRR mean?
A negative IRR means the investment is losing money overall. The total outflows exceed the total inflows in present value terms. This is a clear signal that the investment is destroying capital. In this case, the investor would have been better off putting the money in any positive-yielding alternative, including a basic savings account. If your numbers are producing a negative IRR, review the cash flow assumptions carefully before proceeding.
Why does Year 0 have to be negative?
Year 0 represents the initial investment, which is money you are paying out. In IRR calculations, outflows are negative and inflows are positive. If you invest $50,000 to start a business, Year 0 is -$50,000. The returns you receive in subsequent years are positive numbers. The calculator requires at least one negative cash flow in Year 0 and at least one positive future cash flow to calculate a valid IRR.
Can I use IRR for real estate?
Yes, IRR is one of the most widely used metrics in real estate investment analysis. For a rental property, Year 0 is the purchase price plus closing costs as a negative number. Years 1 through the holding period are the net rental income, which is rent minus mortgage, maintenance, property tax, and management fees. The final year also includes the net proceeds from the eventual sale. The resulting IRR tells you the true annualised return the property delivered, accounting for all cash flows and their timing.
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