Knowing whether or not your investments will generate a profit and growth is a critical component of any investment decision you'll make.
Unlike stocks and bonds, the performance of a property asset cannot be monitored on a daily basis. It’s important to remember that property investing is a considered a medium to long term investment. Therefore, one of the best ways to determine if you will receive a good return on your property investment is to assess the investment using the Internal Rate of Return (IRR) calculation.
Calculating the IRR can assist you, as an investor, to understand what your investment's market value will be in the future compared to its current value, and with this information you can assess the investment risk.
What exactly is meant by the term "Internal Rate of Return" (IRR)?
IRR can be defined as a combination of expected yield and assumed capital growth per year (after costs). Total amount that your investment is expected to grow at per annum, for the full investment period.
What drives IRR?
IRR is primarily driven by two factors: capital growth and rental yield.
IRR is a useful metric for comparing properties with varying return profiles, such as those with a high rental yield and low capital appreciation and those with a low rental yield and significant capital appreciation. The IRR calculation is useful for comparing the total returns of different properties.
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IRR by itself is not a full proof method for determining the actual value of your property because it is based primarily on projections, and actual returns can differ from what you would anticipate, but it is one of the most effective ways to understand your investment and how it will affect you in the future.
Have you seen the exciting properties currently on the platform?
To make investing through EasyProperties even more valuable and exciting, we continue to add more excellent properties onto the platform. We are super excited to show you these amazing properties, and we know you will fall in love with them just as much as we do because of the potential income they will provide.
Happy Investing. 🔥