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What Is The Difference Between IRR and Cap Rate?

In a hurry:

Apply it today:

  • IRR calculates total return over the entire investment horizon

  • Cap rate calculates the un-levered return at a certain point in time (typically the first year)

By the end of this episode you’ll learn:

  • How are they different?

  • How are they used together?

Have a few minutes:

Cap Rate or Internal Rate of Return? It’s a little like asking: Vanilla or Chocolate? Coffee or Tea? Android or iPhone?


There isn’t really a wrong choice. Everyone will make their choice based on the amount of information they have, the amount of time they have, their investment strategy and any number of other circumstances.


We understand investors would prefer to use one over the other in different circumstances. We also understand that each is not without its pros and cons. But, that’s the point. Each has a time and place when they likely work best. And, most would agree, when used together, 1+1 usually equals 3.


In this episode we compare IRR and Cap Rates, describe the circumstances in which they are applied and explain how, when used together, they provide a more complete investment recommendation.

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