Glossary
IRR (internal rate of return)
The annualized total return that ties together purchase, every year's cash flow, and the sale, accounting for timing.
IRR is the discount rate that sets the net present value of all your cash flows to zero. Unlike net yield (which ignores the sale) or cap rate (which ignores financing and the sale), IRR captures the entire holding period: cash in at purchase, NOI each year, debt service, and net sale proceeds at exit. That matters enormously in Tokyo, where capital values move and most of the return often sits in the exit year. A thin-looking 4.3 percent net yield can produce a 5-7 percent IRR once modest appreciation compounds, while a high regional gross yield can disappoint if the building depreciates. The model is only as honest as its exit assumption, so shifting the assumed sale price 10 percent can swing IRR by a full point. Run it before and after Japanese capital gains tax, which differs sharply above and below a five-year hold.