What is the typical Internal Rate of Return (IRR) range for real estate investments?

The typical Internal Rate of Return (IRR) range for real estate investments is often considered to be in the 15-20%+ range. This is due to the combination of rental income, property appreciation, and tax benefits that real estate investments can generate over time. An IRR in this range reflects the expected return that investors seek given the risks associated with real estate, which can include market fluctuations, property management challenges, and changes in the economic environment.

Investors typically require higher returns in relation to the risks taken, and the 15-20%+ range has become a benchmark in the industry. This figure also takes into account the illiquid nature of real estate compared to other investment types, meaning investors need a greater expected return to compensate for the potential difficulties in exiting the investment.

In contrast, a lower IRR range such as 5-10% would not be satisfactory for most real estate investments, as it would reflect a risk-return profile that does not align with the common expectations or the capital requirements involved in property investment. Similarly, an IRR above 20% may be achievable in certain situations, but it often reflects higher risk projects or speculative investments rather than typical core real estate strategies.