IRR is often the first question investors ask about a deal.
That’s understandable. It’s familiar. It allows for easy comparison across opportunities. And in a world where time and attention are limited, a single number can feel like an efficient shortcut.
But as operators, IRR is never where we start.
In fact, it’s usually one of the last things we look at.
Not because it doesn’t matter — but because IRR without context can be deeply misleading.
Why IRR is a weak starting point
IRR is extremely sensitive to assumptions. Small changes in inputs can produce dramatically different outcomes on paper, even when the underlying asset hasn’t changed at all.
IRR moves based on:
- Timing of cash flows
- Exit pricing assumptions
- Refinancing scenarios
- Rent growth projections
- Capital event timing
Two models can show wildly different IRRs for the same property depending on how optimistic — or conservative — those assumptions are.
That’s why IRR often tells you more about the story being told than the asset being evaluated.
As operators, we care far more about whether a deal is durable than whether it looks impressive in a spreadsheet.
What we evaluate first
Before modeling returns, we focus on fundamentals that are harder to manipulate and easier to defend across a range of scenarios.
Some of the earliest questions we ask include:
- Does this deal make sense without aggressive assumptions?
If the business plan requires everything to go right, it’s not a plan — it’s a bet. - Can the property comfortably service its debt under conservative scenarios?
We want margin, not just coverage at peak performance. - Is the upside operational or purely financial?
Real value comes from execution, not creative modeling. - What protects the downside if the market doesn’t cooperate?
Every deal should answer this clearly before upside is discussed.
If a deal can’t stand on its own under conservative assumptions, the projected IRR doesn’t matter.
The operator lens models don’t capture
Financial models are necessary. But they are simplified representations of reality.
They don’t account for:
- Decision lag
- Execution friction
- Onsite team effectiveness
- Vendor reliability
- Market micro-shifts
- Human behavior
As operators, we spend far more time thinking about what happens after the model:
- How will this property actually be managed day to day?
- Where are issues most likely to surface?
- How quickly can problems be identified and corrected?
These considerations rarely show up in an IRR calculation, but they determine outcomes far more than a single headline number.
Sequencing matters more than precision
One of the biggest mistakes we see in underwriting is confusing precision with safety.
Highly detailed models can give a false sense of certainty. Decimal points multiply. Scenarios proliferate. But if the sequencing of events is wrong — or unrealistic — precision doesn’t protect you.
We pay close attention to:
- When capital is actually deployed
- When operational changes realistically take effect
- When risk is highest relative to cash flow
- How much flexibility exists at each stage
Deals fail less often because numbers were wrong and more often because timing assumptions were unrealistic.
Why this matters more in today’s market
In strong or rapidly appreciating markets, aggressive assumptions can hide weak fundamentals. Appreciation can paper over execution issues. Timing can cover mistakes.
In tighter or more volatile markets, those weaknesses are exposed quickly.
Today’s environment rewards:
- Conservative leverage
- Realistic growth assumptions
- Strong asset management
- Flexibility over precision
Deals that look “average” on paper but are operationally sound often outperform deals that look exceptional but rely on refinancing, market momentum, or perfect timing.
This is why experienced operators tend to get more selective when markets tighten — not less.
IRR as an output, not an input
We do look at IRR. It’s a useful metric when used correctly.
But we treat it as an output of disciplined assumptions, not the starting point for a deal.
When IRR is evaluated last, it reflects:
- Realistic timing
- Defensible assumptions
- Balanced risk and reward
When it’s evaluated first, it often drives behavior in the wrong direction — pushing assumptions to fit a target number instead of testing whether the deal itself makes sense.
What this means for investors
Looking beyond IRR isn’t about lowering expectations. It’s about understanding risk and return together, not separately.
Strong outcomes come from:
- Deals that can withstand uncertainty
- Operators who understand execution risk
- Strategies designed to hold up across cycles
Our goal isn’t to show the highest theoretical return. It’s to build investments that remain sound when conditions change — because that’s how long-term value is created.
The takeaway
IRR is a tool. It’s not a strategy.
The most important work in evaluating a deal happens before the model is finalized — in the assumptions, the downside analysis, and the operational reality behind the numbers.
That’s where we spend our time first.
If you’re evaluating multifamily opportunities in today’s environment, we invite you to connect and discuss how we approach risk and timing
