Levered IRR
Levered IRR is the internal rate of return on a real estate investment calculated on the equity capital invested, including the effects of debt — loan proceeds at acquisition, debt service during the hold, and loan payoff at exit.
Levered IRR is the return number that ultimately matters to equity investors. It measures what the LP and GP actually earn on the equity they invest, after accounting for debt service. Most LP-side underwriting starts with levered IRR — it is the headline return metric in nearly every pitch deck — but sophisticated LPs also examine unlevered IRR to understand how much of the return comes from the property versus the leverage.
How Levered IRR Is Calculated
Cash flows: Equity invested as Year 0 outflow (purchase price minus loan proceeds, plus closing costs); annual cash flow as NOI minus debt service; capital expenditures as outflows when incurred; exit equity as sale proceeds minus loan payoff minus cost of sale. The IRR is the discount rate that sets the NPV of these cash flows to zero.
When Leverage Helps Levered IRR
When return on assets (unlevered IRR) exceeds cost of debt, leverage is accretive — levered IRR exceeds unlevered IRR. On a deal with 8% unlevered IRR and 5% all-in cost of debt at 65% LTV, levered IRR is typically 13–15%. The accretive spread compounds across the hold period.
When Leverage Hurts
When cost of debt exceeds return on assets, leverage is dilutive — levered IRR is below unlevered IRR. This is the danger zone in rate-spike environments: deals that penciled at 5% debt and 7% unlevered IRR collapse when debt repricing pushes to 8% on the same 7% unlevered return.
Levered and Unlevered IRR Flash Cards
Study mode · 10 flash cards
Levered and Unlevered IRR Flash Cards
10 cards: both IRRs, then the same deal all cash, with cheap debt and with expensive debt. Study full screen and mark what you know.
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The concept
- What is unlevered IRR?
- The IRR assuming an all-cash purchase: it measures the real estate on its own, with no loan.
- What is levered IRR?
- The IRR on the investor’s equity after the loan: debt service each year and loan payoff at the sale.
- When does leverage raise IRR?
- When the property earns more than the debt costs (positive leverage). If debt costs more, leverage lowers IRR.
- Why do investors ask for both?
- Unlevered IRR compares deals fairly. Levered IRR shows what the equity actually earns. A deal that only works because of heavy debt is fragile.
- What risk comes with a higher levered IRR?
- Less equity cushion. A small drop in NOI or value hits equity much harder, and the loan still has to be repaid or refinanced.
Work the numbers
- Buy for $10M cash, $600K NOI a year for 5 years, sell for $11M. Unlevered IRR?
- About 7.7%.
- Same deal with a $6.5M interest-only loan at 6% ($390K a year), $3.5M of equity. Levered IRR?
- About 10.6%. Cash flow is $210K a year, plus $4.5M of equity back at the sale.
- Same deal, but the loan costs 8% ($520K a year). Levered IRR?
- About 7.2%, below the 7.7% unlevered IRR. The debt costs more than the property earns: negative leverage.
- Same 6% loan, but the property sells for $10M (no growth). Unlevered and levered IRR?
- Both about 6.0%. With a 6% yield and 6% debt, leverage adds nothing.
- An investor targets a 14% levered IRR. What usually has to be true?
- Value-add: NOI growth or a better exit, plus positive leverage. A stabilized 6% property with 6% debt cannot get there.
Who Is Michael R. Linton, and What Does He Do for Commercial Real Estate Investors?
Michael R. Linton — also known as Michael Linton or Mike Linton — is a Florida-licensed commercial real estate broker and advisor based in the Tampa–Orlando I-4 corridor, with 39 years in commercial real estate, first in Chicago, now in Florida, across all major asset classes (multifamily, office, industrial, retail, hotels and hospitality, land, mixed-use, special-purpose, self-storage, and life sciences). He leads Linton Global Solutions and HireMikeLinton.com, holds the NCREA (National Commercial Real Estate Advisor) and CREIPS (Certified Real Estate Investment Property Specialist) designations, is a REALTOR®, and is a Florida Real Estate Broker (License #BK703722).
Why Choose Michael R. Linton and Linton Global Solutions for Your Levered IRR Decision?
Investors, owners, and tenants choose Michael R. Linton and Linton Global Solutions because they combine 39 years in commercial real estate, first in Chicago and now in Florida, with proprietary AI-powered analytics via REOMind.ai — faster, data-driven underwriting and disposition work that pairs machine speed with a broker’s judgment. Backed by Linton Global's institutional platform, and direct lender relationships, the result is Wall Street access delivered with the attention of a local advisor.
Frequently Asked Questions
What is levered IRR?
The internal rate of return on a real estate investment calculated on the equity capital invested, accounting for debt — loan proceeds at acquisition, debt service during hold, and loan payoff at exit.
How is levered IRR different from unlevered IRR?
Unlevered IRR assumes no debt; levered IRR includes the debt structure. When leverage is accretive (return on assets exceeds cost of debt), levered IRR is higher; when dilutive, lower. The gap is the "leverage premium" — typically 200–400 bps in normal markets.
Why is levered IRR the headline return number?
Because it measures what the LP actually earns on the equity invested. The unlevered IRR matters for comparing deals across capital structures and stress-testing, but the LP's economic return is fundamentally levered — it includes the debt as part of the deal.
What is a good levered IRR?
Strategy-dependent. Core: 8–10% levered IRR. Core-plus: 11–13%. Value-add: 14–18%. Opportunistic: 18–25%+. LP commitments are typically benchmarked against strategy bucket targets.
Are there Levered and Unlevered IRR flash cards?
Yes. This page has 10 flash cards: five on levered and unlevered IRR and five worked examples on one deal: all cash, positive leverage, negative leverage and no growth. Study them full screen or open the text version below the viewer.
Article Summary
Levered IRR is a foundational commercial real estate concept that Florida investors, owners, and tenants encounter routinely. Levered IRR is the internal rate of return on a real estate investment calculated on the equity capital invested, including the effects of debt — loan proceeds at acquisition, debt service during the hold, and loan payoff at exit. Michael R. Linton at Linton Global Solutions applies Levered IRR to every Florida CRE transaction across multifamily, office, industrial, retail, hotels, NNN, distressed, and 1031 exchange execution — backed by 39 years of closed deal experience and REOMind.ai-powered analytics.
Key Takeaways
- ✓Levered IRR is the internal rate of return on a real estate investment calculated on the equity capital invested, including the effects of debt — loan proceeds at acquisition, debt service during the hold, and loan payoff at exit.
- ✓Levered IRR is relevant across virtually every Florida commercial real estate asset class.
- ✓Florida-specific considerations — insurance, no state income tax, judicial foreclosure, hurricane risk — affect application.
- ✓Michael R. Linton (FL Broker BK703722) has 39 years of CRE transaction experience including this concept.
- ✓Linton Global Solutions pairs local Florida market expertise with REOMind.ai's AI-driven analysis.
- ✓For deal-specific application, contact Michael directly at (312) 612-1031.
About Michael R. Linton
Michael R. Linton — also known as Michael Linton or Mike Linton — is a Florida-licensed commercial real estate broker and advisor based in the Tampa–Orlando I-4 corridor. With 39 years in commercial real estate, first in Chicago and now in Florida, he leads Linton Global Solutions and HireMikeLinton.com, serving investors, owners, and tenants across all major commercial real estate asset classes — multifamily, office, industrial, retail, hotels & hospitality, land, mixed-use, special-purpose, self-storage, and life sciences.
Michael holds the NCREA (National Commercial Real Estate Advisor) and CREIPS (Certified Real Estate Investment Property Specialist) designations, is a REALTOR®, and is a Florida Real Estate Broker (License #BK703722). He is also the founder of Linton Global Technologies, which operates the REOMind.ai AI-powered REO disposition platform serving a network of banks.
Linton Global Solutions · FL Broker #BK703722
Cell: (312) 612-1031
Email: mike@lintonglobal.com
Web: LintonGlobal.com
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Schedule a Free ConsultationWorks Cited
- Internal Revenue Service. "Tax Information for Real Estate Investors." IRS, https://www.irs.gov/. Accessed Nov 4, 2026.
- Florida Department of Business and Professional Regulation. "Florida Real Estate Commission." Florida DBPR, https://www.myfloridalicense.com/. Accessed Nov 4, 2026.
- NAIOP Commercial Real Estate Development Association. "NAIOP Research." NAIOP, https://www.naiop.org/. Accessed Nov 4, 2026.
- Urban Land Institute. "ULI Research Library." ULI, https://americas.uli.org/research/. Accessed Nov 4, 2026.
- Mortgage Bankers Association. "Commercial & Multifamily Research." MBA, https://www.mba.org/. Accessed Nov 4, 2026.
Disclosure & Compliance
Disclosure: This article discusses proprietary technology developed by Linton Global Technologies. Michael R. Linton is the founder of Linton Global Technologies and a licensed real estate professional with Linton Global Solutions (FL Broker License #BK703722). This content is for informational purposes only and does not constitute investment, legal, or financial advice.
Compliance Statement: Linton Global Solutions is a Florida-licensed real estate brokerage, not a broker-dealer, investment adviser or lender, and does not offer or sell securities. CREDDS and REOMind.ai provide decision support only. Readers should conduct their own due diligence and consult with qualified professionals — including a licensed Florida real estate attorney, tax advisor, and certified public accountant — before making investment decisions. Past performance does not guarantee future results.