Is levered IRR always higher than unlevered IRR?

No. Levered IRR exceeds unlevered IRR only when leverage is positive — meaning the property return exceeds the cost of debt. When interest rates exceed the property's unlevered return, leverage is negative and levered IRR will be lower than unlevered IRR.

What is a good unlevered IRR for multifamily?

Stabilized core multifamily typically targets 7-9% unlevered IRR. Value-add strategies target 9-12%, and opportunistic or development deals target 12%+. The appropriate target depends on risk profile and market conditions.

Why do some investors focus only on levered IRR?

Because levered IRR reflects what equity investors actually earn. However, focusing only on levered IRR can be misleading because high leverage can make a mediocre asset look like a great investment — until the market turns and the debt amplifies losses.

How does refinancing affect levered IRR?

Refinancing that returns equity to investors (cash-out refinance) can significantly boost levered IRR because it reduces the amount of equity at risk while maintaining cash flow. This is why the IRR/equity multiple combination is important — high IRR from early capital return may come with a modest equity multiple.

Levered vs Unlevered IRR: What's the Difference?

Quick Answer: Unlevered IRR measures the annualized return on a property assuming no debt — it isolates the asset's performance. Levered IRR measures the annualized return on equity after accounting for debt service — it captures the combined impact of property performance and financing. Levered IRR is typically higher when leverage is positive (borrowing rate below property return).

See our full guides: Levered IRR and Unlevered IRR.

What Is Unlevered IRR?

Unlevered IRR (also called property-level IRR or asset-level IRR) calculates the internal rate of return using cash flows before any debt service. It measures how the real estate asset itself performs, independent of how it is financed.

Unlevered IRR = IRR of (Total Acquisition Cost, NOI each year, Net Sale Proceeds)

No debt service or loan proceeds in the cash flow stream

What Is Levered IRR?

Levered IRR (also called equity IRR or project-level levered IRR) calculates the internal rate of return on the equity portion of the investment. It starts with the equity contribution, uses cash flows after debt service, and includes net equity proceeds at sale after loan payoff.

Levered IRR = IRR of (Equity Invested, Cash Flow After Debt Service, Net Equity at Sale)

All cash flows are equity-level: after loan funding and before equity distributions

Key Differences: Levered vs Unlevered IRR

Factor	Unlevered IRR	Levered IRR
Debt included	No	Yes
Measures	Asset performance	Equity performance
Cash flows used	NOI, gross sale proceeds	Cash flow after debt, net equity at sale
Initial investment	Total acquisition cost	Equity contribution only
Rate sensitivity	None	High — changes with rates and terms
Typical value	7–12%	12–22% (with positive leverage)
Best for	Comparing assets	Evaluating equity returns

When to Use Each Metric

Use unlevered IRR when: Comparing the intrinsic quality of different properties or markets, evaluating acquisitions before financing is arranged, or isolating operational performance from financing impact. It answers: is this a good asset?

Use levered IRR when: Evaluating the total return to equity investors, comparing deal structures with different leverage levels, presenting fund or syndication returns, or modeling how financing changes impact investor outcomes. It answers: is this a good investment for my equity?

How They Relate in Practice

The spread between levered and unlevered IRR quantifies the benefit (or cost) of leverage. If unlevered IRR is 9% and levered IRR is 16%, leverage is adding 700 basis points of return. But this amplification works both ways: if the property underperforms, levered IRR drops faster than unlevered because debt payments are fixed while equity absorbs all downside.

Institutional investors typically present both metrics in offering memorandums. Unlevered IRR provides the base case for asset quality, while levered IRR shows the projected equity return with the proposed capital structure. The difference between the two reveals how aggressively the deal relies on leverage to generate returns. See how BubbleGum BI's financial dashboards calculate both IRR metrics for every asset and track actual performance against underwriting projections.

Model Levered and Unlevered IRR Across Your Portfolio

BubbleGum BI calculates both IRR metrics for every asset and tracks actual performance against underwriting projections over the full hold period.

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