IRR stands for Internal Rate of Return. It gives an indication on the return you get from an investment and helps you to compare different projects. IRR discounts all of your inflows (e.g. rental income) and outflows (e.g. investments) of the cashflow back to an equal present value (i.e. what they are currently worth). There are different types of IRR. Depending on what you consider the investment (the cost you bought/built the property for), the two main types are:
Ungeared or Project IRR – considers the investment to be developer equity and money borrowed from any funding partner.
Geared or Equity IRR – doesn’t include investments covered by the funding partner but takes into account the repayment to the loan – it is calculated entirely from the perspective of the developer.