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.