What is IRR?
The internal rate of return (IRR) is used to measure the performance of an investment property. It's the percentage earned on each dollar invested for each period it is invested.
This means time, liquidity, and capital expenses, and compound interest are all important components of this metric. Investors use IRR to measure the real potential of an investment asset from acquisition until disposition, including all cash flows and capital expenses incurred during the holding period.
Ultimately, IRR gives an investor the means to compare alternative investments based on their yield. It is considered the best unit of measure for the profitability of an investment.