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IRR (internal Rate of Return) and Yield

What is IRR (Internal Rate of Return)?

IRR stands for Internal Rate of Return - it’s the annualised percentage your investment is expected to grow over the lifetime of the investment.

For example:
If a property shows an 11% IRR, it means it’s projected to grow by 11% per year over the full investment term (e.g. 5 years).

What Drives the IRR?

Two main components:

  • Capital Growth – the increase in the property’s value over time 
  • Rental Yield – the income generated from rental returns or dividends 

These are blended into a single % to give you a clear picture of the total potential return.

Why Do We Use IRR?

Not all properties earn returns the same way.
Some bring in steady rental income. Others aim to grow in value over time.

IRR combines both - giving you one number that shows the total expected return each year.

What is Yield?

Yield is the income you expect to earn from a property investment - usually in the form of rental income.

There are two types you’ll see:

Gross Yield

This is the total rental income expected over a year, expressed as a % of the property’s purchase price.

For example:
If you earn R100,000 in rent from a property that cost R1,000,000 → That’s a 10% gross yield.

Net Yield

This factors in costs of owning the property - like levies, rates, maintenance, and insurance.

Net Yield = Gross Rental Income – Costs

It gives you a realistic picture of your income after expenses.

IRR vs Yield: What’s the Difference?

Metric

What It Means

What It Includes

When It’s Useful

IRR (Internal Rate of Return)

Total expected annual growth of your investment

Capital growth + rental income (net)

Comparing overall return across different properties

Gross Yield

Expected rental income as a % of property price

Rental income only, before costs

Measuring income potential at a glance

Net Yield

Actual rental income after ownership costs

Rental income minus levies, rates, insurance, etc.

Understanding true income after expenses

Tip:

Use Yield to compare income potential, and IRR to compare total investment performance over time.

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