Equity IRR
Equity IRR is the time-weighted internal rate of return on the equity invested in the project. It tells you the annualised return the equity earns from drawdown to distribution.
Formula
Equity cashflows = equity contributions (negative) plus equity distributions (positive), period by period.
Why it matters
Equity IRR is what equity investors care about most. Profit on cost ignores time. Two projects with the same profit can have very different IRRs depending on how long the equity is tied up and when distributions land. For capital partners, IRR is often the single deciding number.
Worked example
If equity contributions over the project are $5M (drawn over months 1–6) and equity distributions are $7.1M (received in months 30–34), the equity IRR is approximately 18.4% — earned over about 30 months of equity exposure.
The same $2.1M of equity profit, returned in 18 months instead of 34, would push the IRR above 25%. Time matters.
Why IRR isn't a return on cost
IRR is annualised. Two projects can have identical profit on cost but very different IRRs because one releases cash sooner. Project sequencing — pre-sales, construction loan drawdown, settlement waterfall — has a first-order effect on IRR.
Equity IRR vs project IRR
Project IRR uses all project cashflows (equity + debt). Equity IRR strips out the debt and only looks at what the equity holder pays in and gets out. Equity IRR is almost always higher than project IRR because debt amplifies returns.
Questions
Frequently asked
What's a good equity IRR for a residential project?
Capital partners typically look for 20%+ on a build-to-sell apartment project. Boutique developers funding their own equity often run on lower IRR thresholds because the equity is theirs.
Why is my IRR so different from my profit on cost?
IRR is time-weighted; profit on cost is not. A short-program project with quick settlement can have a 30% IRR on a 15% profit on cost. A long, capital-intensive project can show the opposite.
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