What Is Internal Rate of Return (IRR)?

The Internal Rate of Return (IRR) shows how profitable an investment is over time. It represents the percentage rate that makes the net present value (NPV) of all future cash flows equal zero.

Why It Matters
IRR helps investors compare opportunities with different timelines. It factors in both rental income and potential resale value, giving a clearer picture than annual yield alone.

Example
If you invest $1 million in a warehouse and receive rent and eventual sale proceeds totaling $1.5 million over 5 years, your IRR might be around 8–10% depending on the timing of cash flows.

How It Differs from Cap Rate

• Cap Rate measures current income vs. price — a snapshot.
• IRR measures total performance over time — a movie.

Typical IRR Targets
Warehouse investors often aim for 7–12% IRR depending on risk, location, and market conditions.

Takeaway
IRR is a key financial tool for analyzing warehouse investments. A higher IRR usually means stronger returns — but only if the underlying assumptions are realistic.