What I Wish I Knew About Internal Rate Of Return

What I Wish I Knew About Internal Rate Of Return

Internal Rate Of Return with EasyProperties

31 May 2022 / Education

Posted by: Ronald Maako

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.

Learn more property terms here or click below

In Conclusion

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.

Here are a few common ummm’s and aaah’s for you to check out, otherwise you can hit up our rockstar client engagement team on helpme@easyproperties.co.za for any questions you have.

Check out our Help Centre - it's jam packed with answers to all the questions you can think of.

Happy Investing. 🔥

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EasyProperties is a juristic representative of First World Trader (Pty) Ltd t/a EasyEquities which is an authorized Financial Services Provider (FSP number 22588). All trades on the EasyProperties platform are subject to the legal terms and conditions to which you agree to be bound. The EasyProperties platform enables users to invest in securities which includes whole shares and fractional share rights (FSRs). EasyProperties acts an agent for the issue of whole shares, where the investor is the registered owner of those shares, entitled to dividends, participation in corporate actions and all the economic benefits and risks associated with share ownership.

In respect of FSRs, EasyEquities acts as principal to a contract for difference issued to the investor, where the investor will have a contractual claim against EasyEquities to the economic benefits and risks associated with share ownership (price movements and dividends) without having ownership rights in the underlying share. Fractional share rights (FSRs) which are issued through a contract for difference, are an over the counter derivative. Unlike whole shares, FSRs do not carry any voting rights. As the investor makes further investments in FSRs and ultimately ends up with a whole share, the contract for difference is closed out and ownership whole share is delivered to the investor.

The availability of any share on the EasyProperties platform is based on various factors but is not an indication of value and does not mean that any share is an appropriate investment for you. The value of a share is not guaranteed. The value can go down as well as up due to variable market factors. An investor may not recoup the full amount invested. Past performance is not necessarily an indication of future performance. Examples and/or illustrations are not guaranteed and are provided for illustrative purposes only.