What Investors Don’t Realize About This Shiny Number

Let’s talk about a number you’ll see in almost every real estate deal:

IRR ( Internal Rate of Return)

It’s pitched as the holy grail of investing.
But most people quoting it don’t fully understand what it means.

And even fewer realize how misleading it can be, especially in deals powered by debt.

So, What Is IRR?

IRR isn’t just your average annual return.
It’s a formula that tries to measure your total profit plus the time it takes to get it.

In theory, a higher IRR means a better deal.
But here’s the catch:

IRR rewards speed, not necessarily stability.
It favors deals that exit quickly, even if that “exit” is just a refinance.
And it often assumes debt is part of the strategy.

How IRR Gets Inflated

Here’s how a typical deal boosts its IRR:

• Use a mortgage to acquire the property
• Improve it over 2–3 years
• Refinance the loan
• Return some investor capital early
• Show a huge IRR even if the property hasn’t been sold

The return looks impressive.
But it’s not coming from cash flow or appreciation…it’s coming from borrowed money.

And if interest rates spike or the refinance falls through? That projected IRR disappears fast.

What IRR Doesn’t Tell You

• How risky the deal is
• How much riba is baked into the returns
• What happens if the refinance or exit is delayed
• Or whether the cash flow is even strong along the way

In many cases, the high IRR comes from leverage, not true performance.
And for Muslim investors, that means hidden exposure to riba.

What Actually Matters

If you’re investing for long term barakah, not just short-term hype, focus on:

✅ Strong, consistent cash flow
✅ Real appreciation over time
✅ Equity based returns, not debt dependent ones
✅ Transparency about where your return is really coming from

You deserve to know if your earning from the asset? Or from the bank behind it?

IRR might be a useful tool, but it’s not the full story.
And in a halal investment, where transparency, intention, and risk-sharing matter, it should never be the headline.