Internal Rate Of Return (IRR)
How many of you seasoned investors use the IRR to compare investment alternatives and run hypothetical situations (ex. hold for 5 and sell vs. hold fo 10 and sell)?
I am currently reading a book on cash flow and IRR seems to be a very useful tool. I wanted to see if you guys are really using it.
Also, if you are willing, please post the steps that you go through in analyzing an investment (for example (1) calc NOI, then Cash Flow after taxes, IRR for each property then compare all properties).
This information is helpful as I want to begin forming a healthy RE analysis habit.
Thanks in advance,
Jon
Hello, Jon
I do not use IRR for property analysis. The main reason is that it is very difficult to predict what than R.E. market is going to do very far out into the future. Certainly, I could crank out various proforma scenarios and do the associated IRRs.
I do use IRR when I am negotiating on a note transaction since the terms of the note or contract are predictable unless there is some level of failure.
I tend to classify regions into appreciation regions and cash flow regions. On occasion I luckily find a region with both. My strategy is to use appreciated assets to trade for cash flow assets and to take cash flow and reinvest with leverage into appreciating regions.
Overall my main interest is in cash flow analysis since over time I want to be sure I can hang onto my properties since my belief is that most of my investment areas will see appreciation over time. Also, I am interested in having spendable income from my investments.
I hope this is of some help to you.
Regards,
Ed
Ed,
Thanks for sharing. Your strategy is very interesting.
So you might be now moving in opposition to the crowd, from Texas (cash flow) to California (appreciation)?
-Jon
Ed,
Would you consider joining my investment group? I started this group a two weeks ago and we have 5 serious investor/members with a range of experience from 1-20 years. We have members that invest in many different RE areas and have a variety of backgrounds (ex. accounting, commercial brokerage, legal etc.). The group meets on the 1st Sunday of each month.
To find more information on the group please do a yahoo search for “nsri real estate investment group – home”. The group forum should come up. Click on the link to my email on the bottom of the page. I will email you more info once you contact me by email.
I look forward to meeting you.
Thanks,
Jon Strishak
Many starting out in the business usually begin with SFH.