Commercial Property Valuations

2020-08-24 17:56:34

Commercial Property is valued by Calculating NPV, IRR and MIRR

Why is MIRR preferred over IRR?

Why Modern Investment Analysts need to make use of MIRR as the preferred Valuation and Measurement technique.

IRR is the "old common sister" of the "younger and more dynamic MIRR"

MIRR - Modified Internal Rate of Return allows the analyst to dictate Investment returns on positive cash flows to resemble a realistic market-related %. Unlike IRR, MIRR will accurately reflect the Investment Returns generated from Investment Property (commercial) over a given time-period and gearing scenario.

IRR - Internal Rate of Return formula is the most widely used by old school valuators/bankers and analysts, but contains a massive flaw in that it keeps calculating the IRR % initially achieved as a rate at which positive cash flows get re-invested.

Now we all know that it is possible to invest surplus cash flows into your own gearing, whether in your portfolio or individual mortgage and that is why all modern analysts set a targeted MIRR to ascertain Investment guidelines and viability.

IRR is best used in comparing two identical opportunities, but MIRR is the realistic valuation formula of choice together with NPV.

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