Why I Sometimes Roll My Eyes at IRR... But Still Pay AttentionThe Science of Scaling by Benjamin Hardy

If you've spent any time around real estate investors, you've probably heard people bragging about IRR.

"My deal is projecting an 18% IRR."

"This investment has a 22% IRR."

And if I'm being truthful...

I sometimes kind of poo poo IRR.

Not because it's wrong.

Because I don't really want to sell my assets.

I'm a buy-and-hold investor at heart. I love recurring income. I love mailbox money. I love waking up years later and still getting paid by a decision I made long ago.

I call that Forever Money.

The challenge with IRR (Internal Rate of Return) is that it often assumes a sale. In many underwriting models, a large portion of the projected return comes from selling the asset five or seven years down the road.

That's great... If your goal is to sell.

But if your goal is financial freedom through recurring cash flow, IRR can sometimes distract from what really matters.

That said...Ignoring IRR completely would be a mistake.

IRR is valuable because it captures the timing of cash flows. A dollar received today is worth more than a dollar received ten years from now. IRR helps compare investments that produce returns at different times and in different ways.

It's one of the best tools we have for comparing opportunities.

The mistake isn't using IRR.

The mistake is using IRR.

When I evaluate a deal, I'm looking at several metrics:

Cash flow after debt service.

Cash-on-cash return.

Debt coverage ratio.

Expense ratio.

And yes... IRR.

Each metric tells part of the story.

IRR tells me how efficiently my capital may grow.

Cash flow tells me how much freedom I'm buying.

And if I have to choose between a slightly higher IRR and a significantly higher monthly cash flow...

I'm usually taking the cash flow.

Because my goal isn't to win an underwriting contest.

My goal is to build a life.

The best investors understand that metrics are tools, not goals.

The goal is knowing which metric aligns with the future you're actually trying to create.

So here's the question...

Are you investing for the highest projected return... or are you investing for the life you actually want to live?