Internal Rate of Return (IRR)

Internal rate of return is the discount rate that sets the net present value of all an investment's cash flows to zero: the purchase, each year of rent after expenses and debt, and the sale. DSCR tells a lender whether the rent covers the loan. IRR tells the investor whether the whole deal was worth doing.

The two measure different things. A property can clear a 1.25 DSCR and still produce a weak IRR if it was bought at a high price or appreciates slowly. Another can sit near 1.00 today and deliver a strong IRR through rent growth and a good exit.

Leverage links them. A larger loan lowers DSCR but can raise IRR, since less of your own cash is tied up. The lender's minimum sets how far you can push that trade. Use the calculator to find the loan the rent supports, then model IRR at that loan size.

Further reading: Internal Rate of Return (IRR) on Wikipedia.