What is a good IRR in real estate investing? It sounds like a simple question, but the answer is usually far more nuanced than investors expect. 

Take two investors evaluating the same market but pursuing different goals. Sarah wants more risk-adjusted return: a newer, fully leased Class A property in suburban Kansas City projecting a 15% Net IRR through disciplined operations and vertical integration. Marcus is focused on growth: he’s considering a 1980s value-add community in the city that requires $2 million in renovations but offers a projected 25% Net IRR once repositioned.

Sarah prefers her deal for its simplicity and predictability. Marcus is comfortable with a more complex business plan if it offers higher potential returns, even with risks related to added construction, timing, and execution.

So who’s making the better decision? The truth is, both could be.

A “good” IRR in real estate depends on several factors, including investment strategy, risk profile, the quality of the property, and the investor’s personal goals. What looks attractive to one investor may not be the right fit for another.

What Is IRR?

IRR stands for Internal Rate of Return. It estimates the annualized return an investor could earn over the life of a real estate investment, taking into account the timing of cash flow.

Unlike return on investment (ROI), IRR factors in when money is received. That’s important because receiving cash flow earlier can produce a higher IRR, even if the total dollars returned are the same.

In multifamily real estate investing, IRR is commonly used by private equity firms, syndicators, institutional investors, and apartment operators to evaluate deals. When looking at these numbers, you need to understand the difference between Gross IRR and Net IRR:

• Gross IRR: The annualized return generated by the property before management fees, sponsor profit splits (promote), and other expenses are taken out.
• Net IRR: This is the number you actually care about. It shows the annualized return that lands in your pocket after all management fees, operational expenses, and sponsor profit splits are taken out.

Some real estate sponsors may highlight Gross IRR to showcase property performance or targeted returns, but passive investors should focus on Net IRR to understand the returns they can actually expect to receive.

Understanding Risk and Return

It’s easy to look at a high IRR and assume it’s the better deal, but in multifamily real estate, higher returns typically come with greater risk. That is why large institutional buyers, insurance companies, and pension funds intentionally target lower-yielding, stabilized assets.

Multifamily investing deals generally fall into three main categories based on risk.

First, you have Core or Class A assets, which typically target an 8% to 12% Net IRR, though these baseline goals naturally flex with market conditions and provide no guarantee of future returns. These are newer, institutional-quality properties in strong locations with good schools and a stable local economy. They’re popular because they tend to be more predictable to own and operate.

Next are Value-Add deals, which usually underwrite in the 12% to 15%+ range. These properties require renovations, better management, or a lease-up strategy to unlock their value.

Finally, there are Opportunistic and Development opportunities which push IRRs of 15% to 20%+. This includes new development projects or heavily distressed real estate, where returns depend on execution, managing construction timelines, and market conditions.

These ranges are simply benchmarks for how investors typically assess risk. A 9% IRR on a high-quality, stabilized asset can actually be an excellent, low-stress investment. On the other hand, a 15% IRR on a major development project may look great on paper, but there may not be much room for error if the economy weakens.

Market Conditions Shift the Benchmark

IRR projections move with the broader economy. When interest rates are low and borrowing is cheap, investors are often willing to accept lower returns. But when rates rise, return expectations increase to compensate for higher borrowing costs and greater uncertainty.

That’s why return benchmarks can shift significantly over time. What looked like a strong IRR in one market cycle may look very different in another. Ultimately, experienced investors look beyond a single number and evaluate IRR within the context of the current market.

So, What Actually Makes a Good IRR?

At the end of the day, what counts as a good IRR in private equity real estate depends on the investor. Neither a cautious approach nor an aggressive strategy is inherently right or wrong. It all comes down to your individual goals, your timeline, and how well you sleep at night if a project runs into challenges.

When you are looking at your next multifamily deal, evaluate the business plan, consider the current market conditions, understand the track record of the team executing it, and decide if the return is worth the risk.

That is why so many investors choose to partner with BAM Capital. Instead of just chasing flashy projections, BAM Capital focuses on a disciplined, risk-adjusted approach to multifamily real estate.

It is a strategy with a proven track record, having historically delivered a Net IRR of 32.9% across 15 realized assets. If you’d like to learn more about our strategies and current investment opportunities, contact our investor relations team at invest@bamcapital.com.

 

Disclaimer: This content is for informational purposes only and is not financial, tax, legal, or investment advice, nor an offer or solicitation to buy or sell securities. Investment opportunities offered by BAM Capital and its affiliates are made pursuant to Rule 506(c) of Regulation D, available exclusively to accredited investors, as defined by the Securities and Exchange Commission (SEC) and, if applicable, qualified purchasers, as defined by Section 2(a)(51) of the Investment Company Act of 1940. Verification of accredited investor status is required before participation in any investment.

Contact BAM Capital for details on current offerings. BAM Capital and its representatives are not fiduciaries or investment advisors. The information provided is general and may not reflect individual financial goals. Financial terms, projections, or forward-looking statements contained herein are hypothetical and should not be interpreted as guarantees of future performance or safety. Such statements reflect BAM Capital’s opinion and are subject to market fluctuations, economic conditions, and investment risks. Investing in private real estate securities involves significant risks, including, without limitation, illiquidity, economic downturns, and potential loss of invested funds or capital. Past performance does not predict or guarantee future results. Historical transaction figures represent past performance across multiple deals as of the date this information was published, not a single investment transaction. BAM Capital and its affiliates do not guarantee the accuracy or completeness of this information. Prospective investors are strongly encouraged to conduct independent due diligence and consult with legal, tax, and financial advisors before making any investment decisions.

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