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Updated almost 3 years ago on . Most recent reply
IRR vs Stock Market Comparison
I'm trying to make sure I understand IRR correctly. Is it correct that I can compare the IRR to average stock market returns? For example, could I theoretically set a metric that, since the S&P500 historically returns 7% adjusted for inflation, an IRR > 7% indicates that it's likely preferable to invest in said property rather than the S&P 500?
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#4 General Landlording & Rental Properties Contributor
- Rental Property Investor
- SE Michigan
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#4 General Landlording & Rental Properties Contributor
- Rental Property Investor
- SE Michigan
IRR is one metric.
Personally, what I focus on is total return, effectively an amalgamation of several metrics. Here are some things I consider
- Equity growth - understanding how my wealth is expected to grow
- Cash flow - because you need cash to pay the bills (We no longer have a W2)
- Tax efficiency - A simple IRR misses this point. All else equal, real estate is much more tax-efficient than stocks