How to Calculate Internal Rate of Return with IRR in Excel

Measure the annual return on two rental properties from purchase, rent and sale cash flows, and pick the better buy.

You will learn to

• Calculate IRR from yearly cash flows
• Compare an IRR with a hurdle rate
• Choose between two investments by IRR

How it works

IRR(values) returns the discount rate that makes the net present value of a series of cash flows zero — in plain terms, the investment’s annual return. The range must start with the outflow (a negative number) and contain at least one positive value: =IRR(B2:B8).

Compare the IRR with your hurdle rate, the minimum return you require. If the IRR is higher, the investment clears the bar. IRR assumes equally spaced periods; use XIRR when the dates are irregular.

=IRR(B2:B8)