Great explanation - Thank you! It's so refreshing to have professional, non-sensationalized content. Hoping you have lots of youtube success. I'll be joining your academy and I've recommended it to friends as well. I think all your hard work will pay off over time.
This video is very helpful!!! I am an old HP user. The 19BII has a function for cash flows where you enter the amount of a flow and the number of times that appears. is there anything similar with Excel. For example, if I am doing an analysis for 35 years with monthly amounts, do I need to enter 35x12 = 420 entries of dates and amounts in order to use the XIRR function?
I assume the same logic would apply to utilize the XNPV vs. NPV function in excel? I am thinking about this in the context of a development model with monthly cash flows (during construction, lease-up, and stabilization). Based on what you have presented here I should utilize the XIRR and XNPV functions to maximize accuracy in model investment analysis. Do you have a video comparing NPV and XNPV you could direct me to? Thanks for your help and the content. Best, Nick
Hey Nick, you are totally correct that this same logic would apply to XNPV vs. NPV for a development model, and that XIRR and XNPV will maximize accuracy in your investment. I don't have a video on UA-cam on XNPV vs. NPV, but do have a section on this in one of my courses if you're interested in taking a look: www.udemy.com/course/the-real-estate-financial-modeling-bootcamp/?couponCode=BOOTCAMPBICREOCT19 Glad you're finding the content helpful!
So in distribution waterfalls, where a certain IRR hurdle must be met, do we refer to the nominal rate of return or the annual effective rate of return. My understanding is that because of compounding XIRR returns the annual effective return which will be higher than the nominal IRR hurdle which assumes annual compounding. Do you have to use NOMINAL (XIRR(.),4) to make apples to apples comparison?
Another great video Justin! Other than XIRR formula capturing dates and cash flows, is there any change required as far as the rest of the waterfall? Thanks for all the guidance
Hi Justin, what's the difference between XIRR and manually entering the formula =(IRR(range of time zero and projected values)+1)^non-annual increment-1?
Hi, thanks for the video. I am having an issue with the XIRR. If I want to check if NPV is actually 0 with the value given by the XIRR formula, using the NPV formula would not give me 0. What could the reason be? I get NPV 0 only when using the IRR formula with yearly CFs. When using other periodicities (monthly, quarterly) with the XIRR, the NPV won't return 0.
Hi, thanks for the video, this was a great breakdown of the difference. Quick question, is there ever a time where it is better to use the IRR over the XIRR assuming the cash flows do not always come at the end of the year? I'm trying to think about this because it seems like XIRR is the automatic go-to, but I haven't been taught about it in my finance academic program?
Hey Damon, great question. The XIRR function works with any cash flow dates, even if they don't occur at the end of the year, which is the main benefit of the function. The IRR function runs into issues with irregularly timed cash flows, so I'd use the XIRR every time. Even if you don't have exact dates of the cash flows, if you can just make an assumption they'll occur every month on the same day, or every quarter on the same day, you'll be much more accurate than a general IRR calculation. As far as why you haven't been taught about it in your finance academic problem, that's a bigger issue about colleges and universities failing to teach some key practical skill sets used in the field. I wasn't taught this in undergrad, either. Crazy!
@@BreakIntoCRE When calculating IRR vs XIRR for time spawns of days instead of years, say 28 days, difference in results will be huge, for example I am getting IRR= 15% vs a XIRR of 547% for same values
XIRR definitely makes the most sense for that. As long as you have the cash flows and the dates associated with those cash flows, XIRR will get you the most accurate result.
Trey - MIRR effectively separates the reinvestment rate from the IRR/XIRR calculations. The latter assume the same reinvestment rate as the deal you're evaluating, which obviously might not be the case. If your required returns are 12% and you're evaluating a deal that has a 15% IRR/XIRR, the MIRR will account for reinvesting the cash flows at your 12% rate. It's helpful to think about it as an opportunity cost rate.
![IRR vs. NPV - Which To Use in Real Estate [& Why]](http://i.ytimg.com/vi/hGw2J__2adU/mqdefault.jpg)
Great explanation - Thank you! It's so refreshing to have professional, non-sensationalized content. Hoping you have lots of youtube success. I'll be joining your academy and I've recommended it to friends as well. I think all your hard work will pay off over time.
Thank you for this Justin. Wish I had known this on some of my deals.
This video is very helpful!!! I am an old HP user. The 19BII has a function for cash flows where you enter the amount of a flow and the number of times that appears. is there anything similar with Excel. For example, if I am doing an analysis for 35 years with monthly amounts, do I need to enter 35x12 = 420 entries of dates and amounts in order to use the XIRR function?
Justin, you're a beast! Content is always awesome and helpful. Keep it up!
Very nicely explained!
Justin, excellent video, well presented. Thank you.
this is so practical! Thank you
Great job man, this applies beyond real estate. Nice work!
Thanks for this video it was super clean and simple. What do you think of using XMIRR? Is it not the most accurate of the group? Thank you!
Clear explanation!! Thank you so much. Couple of folks putting videos on this matter say they are the same without even really knowing about them.
thank you from sandeep from INDIA
I assume the same logic would apply to utilize the XNPV vs. NPV function in excel? I am thinking about this in the context of a development model with monthly cash flows (during construction, lease-up, and stabilization). Based on what you have presented here I should utilize the XIRR and XNPV functions to maximize accuracy in model investment analysis. Do you have a video comparing NPV and XNPV you could direct me to? Thanks for your help and the content. Best, Nick
Hey Nick, you are totally correct that this same logic would apply to XNPV vs. NPV for a development model, and that XIRR and XNPV will maximize accuracy in your investment. I don't have a video on UA-cam on XNPV vs. NPV, but do have a section on this in one of my courses if you're interested in taking a look: www.udemy.com/course/the-real-estate-financial-modeling-bootcamp/?couponCode=BOOTCAMPBICREOCT19 Glad you're finding the content helpful!
Hey Justin, do you have any videos or courses that breakdown the formula for calculating the IRR or does excel always land at the same number anyways?
Just want to ask on the transaction date used on xirr? Do we use the actual settlement date on when the cash was received ?
So in distribution waterfalls, where a certain IRR hurdle must be met, do we refer to the nominal rate of return or the annual effective rate of return. My understanding is that because of compounding XIRR returns the annual effective return which will be higher than the nominal IRR hurdle which assumes annual compounding. Do you have to use NOMINAL (XIRR(.),4) to make apples to apples comparison?
Another great video Justin! Other than XIRR formula capturing dates and cash flows, is there any change required as far as the rest of the waterfall? Thanks for all the guidance
Where is the year 5 value coming from?
Is it okay to use IRR if the CF are made on a yearly basis?. I have a situation where tenants on the property pay yearly rent vs monthly
Hi Justin, what's the difference between XIRR and manually entering the formula =(IRR(range of time zero and projected values)+1)^non-annual increment-1?
Hi, thanks for the video.
I am having an issue with the XIRR. If I want to check if NPV is actually 0 with the value given by the XIRR formula, using the NPV formula would not give me 0. What could the reason be?
I get NPV 0 only when using the IRR formula with yearly CFs. When using other periodicities (monthly, quarterly) with the XIRR, the NPV won't return 0.
Hi Marco, if you use IRR function, you need to use XNPV function for this check to work
if you use XIRR function..*
Great videos! Thanks!!
Useful
Hi, thanks for the video, this was a great breakdown of the difference. Quick question, is there ever a time where it is better to use the IRR over the XIRR assuming the cash flows do not always come at the end of the year? I'm trying to think about this because it seems like XIRR is the automatic go-to, but I haven't been taught about it in my finance academic program?
Hey Damon, great question. The XIRR function works with any cash flow dates, even if they don't occur at the end of the year, which is the main benefit of the function. The IRR function runs into issues with irregularly timed cash flows, so I'd use the XIRR every time. Even if you don't have exact dates of the cash flows, if you can just make an assumption they'll occur every month on the same day, or every quarter on the same day, you'll be much more accurate than a general IRR calculation. As far as why you haven't been taught about it in your finance academic problem, that's a bigger issue about colleges and universities failing to teach some key practical skill sets used in the field. I wasn't taught this in undergrad, either. Crazy!
@@BreakIntoCRE When calculating IRR vs XIRR for time spawns of days instead of years, say 28 days, difference in results will be huge, for example I am getting IRR= 15% vs a XIRR of 547% for same values
Super informative! Thanks Justin!
Thanks for watching!
What if we have unequal cash quarterly?
XIRR definitely makes the most sense for that. As long as you have the cash flows and the dates associated with those cash flows, XIRR will get you the most accurate result.
Hey Justin! Quick question: how does MIRR relate to both IRR and XIRR?
Trey - MIRR effectively separates the reinvestment rate from the IRR/XIRR calculations. The latter assume the same reinvestment rate as the deal you're evaluating, which obviously might not be the case. If your required returns are 12% and you're evaluating a deal that has a 15% IRR/XIRR, the MIRR will account for reinvesting the cash flows at your 12% rate. It's helpful to think about it as an opportunity cost rate.
MrWhooooooooooo thanks!
Brilliant. Thx!
So is XIRR typically higher than the IRR?
It is always higher, cash received sooner is worth more than equal cash received later.
Anyone wanna start a CRE linkedin group?