IRR, internal rate of return (vnitřní výnosové procento)
IRRThe internal rate of return is the annual rate at which the present value of all of an investment's cash flows is zero: own equity at the start, ongoing cash flow and sale proceeds at the end. It takes the timing of money into account and therefore allows a property to be compared with other investments or with the cost of a mortgage. It is calculated iteratively, in a spreadsheet with the IRR function.
Example
A flat bought for CZK 4,600,000 in cash, including costs, earns a net CZK 162,000 a year and is sold after 10 years for CZK 5,500,000: IRR ≈ 5.1 %. With a CZK 3,150,000 mortgage at 5.00 %, the IRR on own money is only about 5.3 %. The loan costs more than the 3.5 % net yield, so the return is driven mainly by price growth.
In practice
An IRR is only as good as the assumptions about rent, costs and sale price, so run a pessimistic scenario without price growth as well. If you sell before the holding period test (časový test) is met, deduct income tax. The ROI and IRR calculator does the arithmetic. Setting an IRR against the gross yield from a listing compares two different things.
How it differs
Related terms
In-depth guide
Calculate your own situation
Instead of abstract definitions — enter your own parameters and see the result for yourself. No registration, no form, no salespeople.