The methodology used to estimate the MIRR is designed to eliminate the problems that may arise in estimating the internal rate of return of a property investment when there are negative cash flows. When owning a property, negative cash flows may arise if expenses (including the mortgage payment if borrowing is used) are greater than the revenue generated by the property. Also in the case of development projects, negative cash flows arise during the development and lease-up stage of the property when the property generates no or very little revenue. The formulas for calculating the adjusted inernal rate of return are discussed in the e-book Real Estate Investment Mathematics.
Estimating correctly the expected rate of return a property acquisition will provide given conservative projections of revenue and property value changes, it is of utmost importance for investors targeting double-digit returns. Thorough and correct analysis, as well thorough due diligence are important for achieving high returns in real estate investing.
