Internal Rate of Return (IRR) is arguably the most widely used metric in commercial real estate, and for good reason. It’s often called the gold standard for evaluating long-term investment performance. In this post, I’ll unpack what IRR really means, how to calculate it, where it excels, and where it doesn’t.
Most real estate investors learn about capitalization rate (cap rate) early on—and for good reason. It’s a useful, at-a-glance measure of a property’s income in relation to its market value.
But cap rate has its limitations: it reflects only a single year of net operating income (NOI), ignores financing, and says little about long-term performance. It looks at a property at a point in time, not over the long term.
If you’re serious about evaluating income-producing real estate—especially in a competitive or uncertain market—you need to go deeper. In this article, I’ll walk you through five advanced metrics that provide a more comprehensive and strategic view of a commercial investment’s potential. Ready for that deeper dive?
You’ve been watching the markets lately. How could you avoid it? You know the story: wild stock swings; headlines driving fear; nonstop chatter about tariffs, recession, interest rates, and global trade. It’s a jungle out there.
But amid all the noise, one thing hasn’t changed—and likely never will: real estate remains one of the smartest, most stable paths to building long-term wealth.
I remembered a day when I was an undergrad psych major at Yale (a day in 1964, if you can believe) when my professor did an experiment in class that stayed with me for all these years.
He had a little mouse and what looked like a Skinner Box – you might remember those from your college years, an enclosure designed to use positive reinforcement – receiving food pellets in a tray – to teach the mouse to perform some action, like pressing a lever.
The prof came into our lecture hall in front of a hundred or more bright-eyed freshman carrying a modified version of the box: It had two separate levers that would each deliver food pellets, and one of the levers was designed to pay off much more frequently than the other.