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Real Estate Jargons on your Fingertips: Investment Yield / Internal Rate of Return (IRR)

When you are looking for an ideal home to live and you go to a real estate agent or a broker or even a builder, they might use jargons which you might not know.

But we give you a solution!!

Read this space every Tuesday & Wednesday for Real Estate Jargons.

Investment Yield

The annual percentage return which is considered to be for a specific valuation in an investment being expressed as the ratio of annual net income (actual or estimated) to the capital value. It is therefore a measure of an investor’s opinion about the prospects and risks attached to that investment. The better the prospects and lower the risks, the lower the expected yield and thus the greater the capital value. The required yield from an investment is estimated in the light of such factors as:

  • The security in real terms of the capital invested.
  • The security in real terms and regularity of income.
  • The ability to adjust the income to reflect market conditions.
  • The complexity and cost of management.
  • The ease and likely cost of realizing the capital.
  • The tax position.

Internal Rate of Return (IRR)

  • The rate of interest (expressed as a percentage) at which all-future cash flows (positive and negative) must be discounted in order that the net present value of those cash flows should be equal to zero. It is found by trial and error by applying present values at different rates of interest in turn to the net cash flow. It is something called the discounted cash flow rate of return.
  • An alternative explanation might be: the highest rate of interest (expressed as a percentage) at which funded cash flow generated is to be sufficient to repay the original outlay at the end of the project life.

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