IRR is the annualized rate of return that makes the net present value of all cash flows from an investment equal to zero. It accounts for the timing and size of every cash flow over the hold period.

IRR reflects total return over time including appreciation and sale proceeds, while cash on cash return is a single-year snapshot of cash yield. IRR is better for comparing deals with different hold periods.

Target IRRs vary widely by strategy and risk, but many investors look for mid-teens or higher on value-add deals. Always compare IRR against the risk and effort required.