IRRs Are Not Real

No one has a crystal ball… especially regarding what a property will sell for (which are highly dependent on exit cap rates). Asset sales prices are more (or should be) like a range of outcomes than backing into a price. You can’t predict the future. Great real estate operators know this and understand how to position a deal to their investors accordingly. You can present your underwrites on a deal as conservative, relative to other operators, by focusing on cash generated by the asset. This is in your control. You can gauge with some certainty how much Yield a deal can generate. More importantly a stabilized yield. An asset’s stabilized yield on cost is the truth. The more yield created, the closer to a positively skewed outcome the deal becomes.

Stabilized Yield on Cost =

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