IDEAS home Printed from https://ideas.repec.org/a/taf/repmxx/v18y2012i2p219-230.html

Some searches may not work properly. We apologize for the inconvenience.

   My bibliography  Save this article

Why IRR is Not the Rate of Return for Your Investment: Introducing AIRR to the Real Estate Community

Author

Listed:
  • Dean Altshuler
  • Carlo Alberto Magni

Abstract

The internal rate of return (IRR) is used extensively in the real estate sector. Unfortunately, the IRR calculation itself assumes interim investment values that are mechanically generated by the IRR equation itself and will almost surely differ from the true interim values of the project under consideration. To the extent that these values differ, the IRR result will not be an accurate rate of return. Furthermore, from an ex post, i.e., performance reporting standpoint, such values implied by the IRR will almost certainly contradict any estimated project values being used for time-weighted rate of return (TWR) purposes. A new metric called Average IRR (AIRR) produces a correct money-weighted rate of return (MWR) for a project. Furthermore, AIRR has none of the other problems that the IRR has (e.g., it always exists and is unique), and it appropriately accounts for the amounts actually invested over the course of the investment.

Suggested Citation

  • Dean Altshuler & Carlo Alberto Magni, 2012. "Why IRR is Not the Rate of Return for Your Investment: Introducing AIRR to the Real Estate Community," Journal of Real Estate Portfolio Management, Taylor & Francis Journals, vol. 18(2), pages 219-230, January.
    • Handle: RePEc:taf:repmxx:v:18:y:2012:i:2:p:219-230
    DOI: 10.1080/10835547.2012.12089920
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/10835547.2012.12089920
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/10835547.2012.12089920?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:repmxx:v:18:y:2012:i:2:p:219-230. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/repm20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.