IRR rate of 3680.29% it is possible? I did something wrong?
A company asked me to do a feasibility study, and in the discounted cash flow, the IRR rate is resulting in 3680.29%, did I do something stupid?
[{"id": "ir0a2re", "text": "Yes", "replies": [{"id": "ir0bzg7", "text": "Stonks.", "replies": [{"id": "ir1rp4v", "text": "3680.29% TO THE MOON", "replies": [{"id": "ir2qh35", "text": "420.69% IRR or bust", "replies": [], "depth": 4}], "depth": 3}, {"id": "is12z2s", "text": "Stonks only go up.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ir0c1hs", "text": "Did you forget to buy or build the property in your analysis?", "replies": [], "depth": 1}, {"id": "ir0cqz4", "text": "Yes, something is wrong.", "replies": [], "depth": 1}, {"id": "ir0cs7l", "text": "Need to include the cash outlay for the buy/build as a negative number as the first in your sequence of returns", "replies": [], "depth": 1}, {"id": "ir0dbxj", "text": "I was already panicking, but I see now that it was the cash flow formula that wasn't counting staff expenses lol\n\n  \nBut anyway, what's the highest IRR rate you've ever seen? Because it's still high: 58%... I'm finding it strange", "replies": [{"id": "ir0e2tu", "text": "58% is plausible, I\u2019ve had models come out in that range before. Especially if you\u2019re developing to a high cap rate and projecting a sale at a low cap rate, in a relatively short time frame. Models are only as good as their inputs and IRR can be a very time sensitive measure, particularly if you have any significant positive cash flows in the first year (e.g. refinance or sale).", "replies": [{"id": "ir1rvyi", "text": "The way cap rates Re predicted to slide with inflation push, I recommend not going too low on your protections.", "replies": [{"id": "ir4ubye", "text": "Agreed on this. It\u2019s gravy if it does go lower but with debt costs already increasing substantially, I haven\u2019t seen the market adjust for that in their cap rates yet. It should though at some point in theory.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}, {"id": "ir0hp4a", "text": "1. What property type?\n2. What is the Opex ratio (Expenses / income)?\n3. What\u2019s your going in cap rate?\n4. What\u2019s your sale cap rate?\n5. What\u2019s your hold period?", "replies": [], "depth": 2}, {"id": "ir0k24b", "text": "Projecting 58% going in is high for sure. But for the right project I could see it.\n\nI had a passive multifamily investment of mine go 79% this year. Not sure I'll ever see that again.", "replies": [], "depth": 2}, {"id": "ir1jto3", "text": "Double check those income and expense numbers. They might not be supported by an appraisal. Brokers take out way too much in there proforma expenses.\n\nLook at the purchase and sale price. You could be optimistic on your sale valuation, especially in a rising interest rate environment. Are you adding immediate repair reserves and ongoing reserves?\n\nIt is possible you achieve those numbers, but I would  add in more contingencies to bring down the expected IRR to a more reasonable amount. Always better to under promise and over deliver", "replies": [{"id": "ir2x961", "text": "Are you correctly PVing the reversion? \n\nDoes your terminal cap rate make sense in this new operating environment (I.e. no compression)? \n\nWhat is the spread between your going in cap rate and your terminal? \n\nHow did you build your discount rate?", "replies": [], "depth": 3}], "depth": 2}, {"id": "ir1n67n", "text": "58% is still high but not insane.  Is there a waterfall or promote?   Is your purchase price or exit being calculated correctly?  Off the top of my head you may be missing the purchase price or your exit might be over inflated.", "replies": [], "depth": 2}], "depth": 1}, {"id": "ir0sb5l", "text": "Can I please get in your deals!  LOL.  \n\nSomething is wrong pure and simple.", "replies": [], "depth": 1}, {"id": "ir0ugz4", "text": "Generally, the shorter the hold period the higher the IRR. We just sold a deal we bought 3 months ago at a 4 digit IRR lol", "replies": [], "depth": 1}, {"id": "ir0z80f", "text": "Technically it can be, but it would be very uncommon. What is your cash flow?", "replies": [], "depth": 1}, {"id": "ir16nct", "text": "IRR can be infinite if you 100% finance out your deal.  But probably a mistake.  You should just be using the=NPV calc in excel.", "replies": [], "depth": 1}, {"id": "ir1pi30", "text": "Unless it is a Dogecoin pump-and-dump retrospective, yes, you probably done goofed.\n\nIs there anything special about this deal? Was the land conveyed at nominal $1, was the construction period a breeze and your hold period was very short before you got an offer for a million dollars per door?", "replies": [], "depth": 1}, {"id": "ir2ldps", "text": "What shitcoin was it?", "replies": [], "depth": 1}, {"id": "ir371yk", "text": "It's just a really great deal: the e(x) should also be a good 30-40x or so as well too. \n\nHopefully you brought the seller so you'll get a piece of that shit. What a killer", "replies": [], "depth": 1}]