Michael Belasco
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Why Your IRR and XIRR are Different (Updated June 2024)

This post was inspired by a question on our real estate financial modeling Accelerator forum. Additionally, Spencer and I frequently get emails asking about this very issue, which is ‘why the IRR (internal rate of return) and XIRR (extended internal rate of return) functions provide different results on the same cash flow’.

Both functions aim to do the same thing in a given proforma, yet the results come out differently when utilizing one or the other. What is the reason for this? And which one should you be using as a more ‘correct’ representation of the return metric?

If you haven’t done so already, I highly recommend you check my previous post on IRR and XIRR, which fully explains these metrics in a very clear and easy to digest manner.

Overview of IRR vs. XIRR in Real Estate Financial Modeling

As a basic primer, both the IRR and XIRR functions aim to figure out the discount rate that should be inserted in the present value formula so that when you discount the future cash flows to the present and add them together, they equal the assumed purchase price in time period zero. The IRR function, however, can only be used on cash flows that are rolled up into annual periods and the XIRR function can be used when there are periods that are differing than annual periods.

In the video below, the aim is to answer both ‘why there is a difference’ and ‘which metric is more appropriate to use’.  We do this using a very basic template to walk you through both a conceptual understanding as well as walk through the formulas for both. The template can be downloaded below the video and you can use that to follow along.

Explore More: To further your understanding of IRR and XIRR in commercial real estate, try our Data Analysis for CRE Custom GPT. This tool is designed to help you refine your financial modeling skills specifically around these metrics, enabling more precise and informed investment decisions.

Video –  Why Your IRR and XIRR are Different

In the following video, I describe the different results that come out of the IRR() function and the XIRR() function in Excel. Specifically I explain how you can have the same cash flow, but differing internal rate of return result depending on the timing of the cash flow and which function you use. Use the link at the bottom of this post to download the source files (template and completed) for this exercise.

Download the Source Files – IRR vs. XIRR Tutorial

To make these files accessible to everyone, they are offered on a “Pay What You’re Able” basis with no minimum (enter $0 if you’d like) or maximum (your support helps keep the content coming – similar real estate training exercises sell for $50+). Just enter a price together with an email address to send the download link to, and then click ‘Continue’. If you have any questions about our “Pay What You’re Able” program or why we offer our models on this basis, please reach out to either Mike or Spencer.

Proceed to Download Page

Version Notes

v1.0

  • Initial release

Frequently Asked Questions about Why Your IRR and XIRR are Different

 

The IRR() function calculates the internal rate of return assuming cash flows occur at regular, periodic intervals—typically annual. It assumes even spacing between periods.

The XIRR() function allows for cash flows that occur at irregular intervals, using exact dates. This makes it more flexible and accurate for real-world investments where timing varies.

Because IRR assumes equal time periods (e.g., annual) and XIRR uses actual dates, any variation in cash flow timing—even a few months—can cause the results to differ significantly.

If your cash flows occur at irregular time intervals, use XIRR for more accurate results. If all cash flows are evenly spaced, either IRR or XIRR will work, though IRR is simpler to apply.

Yes. XIRR is ideal for monthly or quarterly cash flows because it accounts for exact timing using a date schedule, whereas IRR treats them as if they occurred yearly unless adjusted.

Yes, in most real estate models where timing matters, XIRR is more precise because it considers the actual dates when cash is received or paid. IRR may be misleading when used with non-annual cash flows.

You can watch the video and download the Excel template linked in the article to explore the difference hands-on. These resources provide a conceptual and formulaic breakdown of both IRR and XIRR.

The Data Analysis for CRE GPT tool can help you apply IRR and XIRR in real estate financial modeling more precisely, offering support in refining these calculations within your models.

About the Author: Michael has spent a decade working in various capacities on more than $7 billion of real estate transactions spanning all asset classes and geographies throughout the USA. Michael is both the founder of Firm Ridge Real Estate, which has a core focus on niche and emerging real estate strategies and A.CRE Consulting, a real estate advisory and financial modeling firm that has provided services on projects totaling more than $21 billion to date. Prior, Michael was a founding member and COO of Stablewood Properties, an institutionally backed real estate operator. And before Stablewood, Michael was at Hines in San Francisco.  Michael has both an MBA and Master in Real Estate with a concentration in Real Estate Finance from Cornell University.

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