Multifamily Investment IRR Calculator
A Few Important Notes:
• For simplicity, this code simulates the mortgage month‑by‑month for the holding period (in months) and aggregates the total mortgage payments per year.
• If balloon mode is enabled, the calculation uses the lesser of the entered investment horizon and balloon term as the holding period.
• At year 0, the cash flow is the negative initial equity investment (down payment, rehab, closing, and points fees). For each subsequent year the cash flow comes from net operating income (rental income minus operating expenses) minus the annual mortgage payment. In the final year the net sale proceeds (sale price less commission) less the remaining mortgage balance (the balloon) are added.
• The IRR is computed via a simple binary search method that approximates the discount rate which brings the net present value (NPV) of the cash flow series close to zero.
Disclaimer: This model uses several simplifying assumptions and should only be used as an educational starting point. Real-world investments may involve additional factors (taxes, vacancy rates, refinancing, etc.). Users should consult with a financial professional before relying on these results
IRR Calculator
How This Calculator Works
Inputs:
Property and Financing: You enter the purchase price, loan amount, annual interest rate, and amortization period. If you enable the balloon scenario, you provide a balloon loan term (in years). You also enter initial rehab costs, closing costs, and loan points.
Operational Details: You enter your starting annual rental income and operating expenses along with their respective annual growth rates.
Exit Details: You specify the investment horizon, expected sale price, and sales commission (%).
Mortgage Simulation:
The monthly mortgage payment is computed using the full amortization period. The code then simulates monthly payments over the holding period (which, in a balloon scenario, is capped by the balloon term).
The remaining balance at the end of the period is treated as the balloon payment.
Cash Flows and IRR Calculation:
Year 0 is your negative initial equity investment.
Each subsequent year accrues net cash flow from operations (rental income minus operating expenses, minus annual mortgage payments).
In the final year, net sale proceeds (sale price less commission) are received, and the balloon (remaining mortgage balance) is repaid.
Finally, the IRR is calculated using a binary search approach on the resulting annual cash flow series.
Use this tool as a starting point for evaluating multifamily investments. Be sure to review and, if needed, adjust the model assumptions to better match your real-world situation or consult with a financial professional before making any investment decisions.
