What is IRR (Internal Rate of Return)?

What is IRR?

Internal Rate of Return is the single annualised percentage return that makes the present value of every cashflow in and out of a property — including a hypothetical future sale — equal to zero. Unlike yield or Cap Rate, which look at a single year in isolation, IRR accounts for the whole timeline: your original cash outlay, every year’s ongoing cashflow, and the value you’d walk away with if you sold at the end.

Where you’ll see it

Property → Forecast tab, shown as “IRR to Year N” — N being whichever forecast horizon (5yr / 10yr) is currently selected. IRR is horizon-dependent by nature, so it recalculates whenever you change the horizon or the underlying growth assumptions.

How Property Insights calculates it

1. Cash in, at the start: your actual cash invested — deposit, stamp duty, legal fees, mortgage fees, inspection fees, LMI, and fixtures & fittings.
2. Cashflow, each year: the forecast’s ordinary net cashflow for that year (rent, less expenses, less mortgage payments).
3. A hypothetical sale, in the final year: the property sold at that year’s forecasted value, less an estimated ~2.5% for agent commission and legal costs, less the remaining loan balance — added on top of the final year’s ordinary cashflow.
4. The rate that discounts all of that back to zero is the IRR.

What it doesn’t account for

This is a pre-tax figure — no Capital Gains Tax is modeled on the hypothetical sale, since CGT depends on ownership structure, discount eligibility, and other details that don’t cleanly apply to a sale that hasn’t actually happened. It’s also a forecast, driven by the same capital growth, rental growth and expense growth assumptions shown above the chart — change those assumptions and the IRR moves with them. Treat it as a single comparable number across scenarios, not a guarantee of the return you’ll actually realise.