Internal Rate of Return (IRR)

IRR is the yearly rate of return that, when used to discount every dollar going into and coming out of a deal, makes the total come out to exactly zero. It suits BRRRR better than a single-year ratio, because it captures cash going in, cash coming back at the refinance, rent over the hold and the eventual sale.

BRRRR concentrates cash flows early: a large outlay, then a large return of cash a few months later. IRR rewards that speed. A deal that returns most of the investor's money within a year can show a high IRR even with modest monthly cash flow.

The number depends heavily on the sale price and holding period the investor assumes, so it is best treated as a range. Measuring cash on cash return against the cash still tied up in the property is simpler, and it needs no guess about a future sale.

Further reading: Internal Rate of Return (IRR) on Wikipedia.