Internal rate of return (IRR) is the annual rate of return a deal earns over the whole time you own it, counting every dollar in and out and the timing of each one. That includes the cash you invest, each year's cash flow and what is left after you sell and pay off the loan.
Cash invested = sum of each year's cash flow ÷ (1 + IRR)^year
IRR is the rate that makes that equation balance, with the sale proceeds counted in the final year. There is no direct formula for it, so investors use a spreadsheet or an analysis tool. Say you invest $50,000, collect $5,000 of cash flow at the end of each year for five years, and walk away with $50,000 after selling at the end of year five. The IRR is 10%. If the sale left you with $70,000 instead, the IRR would be about 15.8%.
IRR rewards getting money back sooner, which the equity multiple ignores. Its weakness is the guesswork behind it: sale price, rent growth and hold period are forecasts, and small changes move the result a lot. Treat a projected IRR as one scenario, not a promise, and check that the deal still works on cash-on-cash return alone. Figures are pre-tax unless you model taxes yourself.