IRR Sensitivity Analysis

IRR sensitivity analysis tests how investment returns change when key assumptions vary, revealing which variables most impact profitability and quantifying downside risk.


Variable TestedTypical Range
Rental growth rateMinus 2% to plus 5% annual
Exit cap ratePlus or minus 1% from base case
Initial vacancy0% to 20%
Operating expense growth0% to 6% annual
Interest ratePlus or minus 2% for variable loans
Hold period3 to 10 years
Scenario AnalysisIRR Impact
Base case12% IRR
Optimistic (rent growth plus 2%)15% IRR
Pessimistic (rent growth minus 2%)8% IRR
Exit cap rate plus 0.5%10% IRR
Combined worst case5% IRR (below hurdle rate)

Related Terms

Internal Rate of Return (IRR)Due DiligenceRisk Assessment Investment ModelingScenario Planning

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