Look beyond year-one cash flow.

IRR, or internal rate of return, is the annualized return on an investment that accounts for the timing of every cash flow across the entire hold, including the purchase, ongoing cash flow, any refinance, and the eventual sale. Unlike cash-on-cash return, it values money received sooner more than money received later.

Many real estate investors look for an IRR somewhere in the low-to-mid teens or higher over a multi-year hold, but the right target depends on risk, strategy, and financing. A stabilized, low-risk rental may justify a lower IRR, while a heavier value-add deal usually needs a higher one.

Cash-on-cash return measures one year of cash flow against the cash invested and ignores timing. IRR looks at the full lifetime of the investment, including appreciation, refinance, and sale proceeds, and accounts for when each dollar arrives. IRR is better for comparing different hold periods and exit plans.

A refinance can pull tax-free cash back out of a property and reset the loan, which often improves IRR because you get capital back sooner and can redeploy it. The tradeoff is a new loan balance and payment. Modeling the refinance year directly shows whether it helps or hurts the overall return.