The IRR Before Debt for the entire holding period is 11.2%, and the NPV Before Debt @10.00% is $212,846.

In this case 11.2% IRR is greater than the 10.00% discount rate, and that means if the initial investment in the beginning is increased by the $212,846 the IRR will be very close to the 10.00% discount rate (both numbers are rounded). The IRR is the discount rate that makes the NPV zero hence, if the IRR is exactly the same as the discount rate, the NPV would be zero (rounding means it is usually very close to zero). The IRR and the NPV use the same cash flows and the same process. The IRR simply runs lots of NPV's seaching for the discount rate that returns a NPV that is close to zero.

The IRR can be compared to the redemption yield of a bond, or the APY on a bank account.

Before Debt Cash Flows for IRR and NPV

MM/DD/YY	Cash Flow
01/01/2008	($3,015,000)
01/15/2008	($3,015,000)
02/15/2008	$24,403
03/15/2008	$24,403
04/15/2008	$24,403
05/15/2008	$21,494
06/15/2008	$21,494
07/15/2008	$21,494
08/15/2008	$21,494
09/15/2008	$21,494
10/15/2008	$21,494
11/15/2008	$9,432
12/15/2008	$21,804
01/15/2009	$255,288
02/15/2009	$25,222
03/15/2009	$25,222
04/15/2009	$25,222
05/15/2009	$25,222
06/15/2009	$25,222
07/15/2009	$25,222
08/15/2009	$25,222
09/15/2009	$25,222
10/15/2009	$25,222
11/15/2009	$25,304
12/15/2009	$25,304
01/15/2010	$302,989
02/15/2010	$12,753
03/15/2010	($87,758)
04/15/2010	$24,541
05/15/2010	$24,541
06/15/2010	$24,541
07/15/2010	$24,541
08/15/2010	$24,707
09/15/2010	$24,707
10/15/2010	$24,707
11/15/2010	$24,792
12/15/2010	$24,792
01/15/2011	$171,736
02/15/2011	$24,896
03/15/2011	$25,250
04/15/2011	$25,250
05/15/2011	$25,250
06/15/2011	$25,250
07/15/2011	$25,250
08/15/2011	$25,250
09/15/2011	$25,250
10/15/2011	$25,250
11/15/2011	$21,825
12/15/2011	$21,902
01/15/2012	$292,524
02/15/2012	$22,001
03/15/2012	$25,674
04/15/2012	$25,674
05/15/2012	$25,674
06/15/2012	$25,674
07/15/2012	$25,674
08/15/2012	$25,674
09/15/2012	$25,674
10/15/2012	$25,674
11/15/2012	$25,674
12/15/2012	$25,759
01/15/2013	$304,581
02/15/2013	$15,039
03/15/2013	$15,414
04/15/2013	$15,414
05/15/2013	$15,414
06/15/2013	($55,817)
07/15/2013	$28,001
08/15/2013	$26,345
09/15/2013	$26,386
10/15/2013	$28,119
11/15/2013	$28,119
12/15/2013	$28,207
01/15/2014	$198,848
02/15/2014	$28,321
03/15/2014	$28,707
04/15/2014	$28,707
05/15/2014	$28,707
06/15/2014	$29,008
07/15/2014	$29,008
08/15/2014	$29,008
09/15/2014	$29,053
10/15/2014	$29,053
11/15/2014	$29,053
12/15/2014	$25,466
01/15/2015	$339,637
02/15/2015	$25,559
03/15/2015	$12,013
04/15/2015	($101,170)
05/15/2015	$29,336
06/15/2015	$29,646
07/15/2015	$29,646
08/15/2015	$29,646
09/15/2015	$29,692
10/15/2015	$29,692
11/15/2015	$29,692
12/15/2015	$29,692
01/15/2016	$203,230
02/15/2016	$29,812
03/15/2016	$29,906
04/15/2016	$30,317
05/15/2016	$30,317
06/15/2016	$30,636
07/15/2016	$30,636
08/15/2016	$30,636
09/15/2016	$28,746
10/15/2016	$28,788
11/15/2016	$30,687
12/15/2016	$30,687
01/15/2017	$361,952
02/15/2017	$30,811
03/15/2017	$30,907
04/15/2017	$31,331
05/15/2017	$31,331
06/15/2017	$31,659
07/15/2017	$31,659
08/15/2017	$31,659
09/15/2017	$31,659
10/15/2017	$31,708
11/15/2017	$31,708
12/15/2017	$31,708
01/01/2018	$3,818,679

All the IRR's and NPV's are computed on a monthly basis using the XIRR and XNPV process which is designed to handle irregular cash flows. To verify the IRR or NPV a spreadsheet program like Excel, Google Spreadsheets, Matlab, etc. will need to be used, because most financial calculators are not able to compute irregular dates and cash flows like the table shown.

Here are links to other descriptions of XIRR and XNPV:

• Excel XNPV Description
• Excel XIRR Description
• Google Spreadsheet XNPV Description
• Google Spreadsheet XIRR Description
• MATLAB XIRR (Internal rate of return for nonperiodic cash flow) Description

Directions for XIRR/XNPV Excel Verification

1. Open Excel and try to insert function/financial/XIRR or XNPV
2. If the XIRR or XNPV is not there, select Tools/Add-ins, and add the analysis toolpak.
3. Copy and paste the cash flows shown into excel. If the paste does not go into separate columns try a paste special as text.
4. Insert the function/financial/XIRR or XNPV and highlight the dates, and cash flows as directed by the function.

How is a monthly IRR or NPV different from a Yearly IRR or NPV?

A Yearly IRR assumes that there is one total Cash Flow amount each year. If you are using an End-of-Period Convention, that Cash Flow is assumed to occur at the end of the year. Using this method, for example, a 30 year 12% mortgage evaluates to a 12% IRR for the lender. Most bankers know this is false, and they will consider the fact that the payments are received each month rather than at the end of the year, and correctly calculate that their IRR (Lender's Yield) on the mortgage is 12.68%. It is easy to correct for this calculation deficiency (since the monthly payment is always the same) by using a "Mid-Year Convention" which assumes that the annual cash flow occurs at the mid-point of the year involved. Using this convention, the computed Yearly IRR for the 12% mortgage returns to the (correct) 12.68%.

For the Mid-Year Convention to be accurate in computing IRR and NPV, however, the monthly cash flows must all be equal. This is almost always false with real estate investments, and in some cases it is grossly false. Consider development or other capital spending items such as rehabilitation. Think of the cash flow effect of re-financing or monthly draws on a development loan. Consider that leases end --- and their renewals (or new tenants) may involve Vacant Periods, Free Rent, Tenant Improvements and Commissions, all of which do not occur in convenient annual time frames. These and other events combine to assure that the monthly cash flows for real estate investments are and will be unequal. In turn, Yearly IRR and NPV calculations are almost always inaccurate, and sometimes grossly inaccurate.

For these reasons, competent real estate analysis software must compute monthly cash flows and compute the IRR and NPV measures on a monthly basis if those measures are to be accurate. Since these measures are continuously used in practice to compare and decide between real estate (and other) investments, accuracy is mandatory if proper decisions are to be made. In recognition of this, Excel (for example) corrected it's previous (until 1996) Yearly IRR and NPV routines with new XIRR and NPV routines that expressly consider the date of a cash flow rather than assuming they occur a year apart. Other spreadsheet programs such as Google and MATLAB also now offer this capability.