Modified Internal Rate of Return (MIRR)

The significant problem with the Internal Rate of Return (IRR) calculation is that the formula assumes that you are reinvesting the annual cash flow at the same rate as calculated by the IRR.  As a result, when you have a property that generates significant cash flow, the calculated IRR will overstate the likely financial return of the property.  The Modified Internal Rate of Return (MIRR) allows you to enter a different rate that is applied to the property’s annual cash flow.   This rate used is generally a bank or savings rate.  Using the Modified Internal Rate of Return (MIRR) will more closely mimic reality as you rarely are able to reinvest the cash flow at the same rate of return as determined by the IRR formula.

The finance rate is the annual interest rate that you would pay to cover any negative cash flows incurred during the life of the investment.

The reinvestment rate is the interest rate that you would earn on cash that the investment generates during its life.