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A Tutorial on Partitioning Real Estate Investment Cash Flows Using the Internal Rate of Return

  • Mark G. Dotzour
  • Donald R. Levi
Part of the Research Issues in Real Estate book series (RIRE, volume 2)

Abstract

Much has been written on the use of the internal rate of return (IRR) as an investment decision-making criterion. In a 1977 survey article, Jaffe (1977) cited 1,188 IRR references and classified them into four categories: (1) tutorial, (2) calculations and multiple solutions, (3) alternative measures, models and computations, and (4) reinvestment, risk and discounting, and ranking. Because of the possibility of multiple solutions when cash flows turn negative, and of the inherent assumption that cash flows generated can be continuously invested elsewhere at the project IRR, the consensus is that the net present value investment decision-making criterion is superior, and that the IRR’s principal use should be for ranking investment alternatives.1

Keywords

Real Estate Cash Flow Operating Expense Real Estate Investment Mortgage Interest 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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References

  1. Arditti, Fred D. “A Note on Discounting the Components of an Income Stream”. Journal of Finance 29 (June 1974), 995–999. Google Scholar
  2. Cassidy, Thomas C. “Breaking Down the IRR”. Commercial Investment Real Estate Journal 5 (Spring 1986), 26–30. Google Scholar
  3. Dorfman, Robert. “The Meaning of Internal Rates of Return”. Journal of Finance 36 (December 1981), 1011–1021.CrossRefGoogle Scholar
  4. Dotzour, Mark G. and Donald R. Levi. “Partitioning the After-Tax IRR for Better Analysis”. Real Estate Appraiser and Analyst (Spring 1989), 60–66. Google Scholar
  5. Jaffe, Austin J. “Is There a ‘New’ Internal Rate of Return Literature?” Journal of American Real Estate and Urban Economics Association 5 (Winter 1977), 482–502. Google Scholar
  6. Messner, Stephen D. and Byrl N. Boyce. “Partitioning Real Estate Yields”. Commercial Investment Journal 4 (Summer 1985), 24–28. Google Scholar
  7. Modigliani, Franco and Merton H. Miller. “Corporate Income Tax and the Cost of Capital: A Correction”. American Economic Review 53 (June 1963), 433–443.Google Scholar
  8. Pellatt, Peter G.K. “The Analysis of Real Estate Investments Under Uncertainty”. Journal of Finance 27 (May 1972), 459–471. Google Scholar
  9. Valachi, Donald J. “The Three Faces of IRR”. Real Estate Review 8 (Fall 1978), 74–78. Google Scholar
  10. Webb, James R. and Jack H. Rubens. “The Effect of Unbundling Asset Returns on Restricted Mixed-Asset Portfolios”. Working paper presented at American Real Estate Society’s annual meeting, 1988. Google Scholar
  11. Robert H. Zerbst. “Partitioning the Internal Rate of Return”. Real Estate Review 9 (Winter 1980), 80–84. Google Scholar

Copyright information

© Kluwer Academic Publishers 1995

Authors and Affiliations

  • Mark G. Dotzour
  • Donald R. Levi

There are no affiliations available

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