IRR is a time-weighted return metric that accounts for the timing and magnitude of all cash flows including eventual sale. Institutional LA multifamily underwriting typically targets 12–18% IRR.
IRR is the discount rate that makes the net present value of all cash flows equal zero. In plain English: it's the annualized return over the full hold period, accounting for when money comes in and goes out.
Unlike cash-on-cash (which is a single-year metric), IRR reflects the entire investment arc — initial capital outlay, years of cash flow, and eventual sale proceeds. Institutional investors use IRR to compare multifamily deals across different hold periods and cash flow profiles.
For LA multifamily value-add deals in 2026, IRR targets typically run 14–18% gross. Core stabilized deals target 10–13%. Post-1995 Costa-Hawkins exempt inventory compresses IRR due to tighter cap rates; pre-1978 value-add generates higher headline IRR but with more execution risk.
From the Sterman LA Multifamily Glossary — defined the way a broker with $1.41 billion across 254 closed transactions actually uses these terms.
Michael Sterman, Senior Managing Director Investments, Marcus & Millichap.
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