Return expectations for real estate investors in today’s market depend on the investment type, location, and risk profile. Here’s a breakdown of what investors are generally targeting right now (in the second quarter, 2025), including key metrics such as IRR, AAR, cash-on-cash returns, and equity multiples.
Core / Institutional Assets (Low Risk – e.g., stabilized multifamily in primary markets):
Target IRR: 6%–9%
AAR: 6%–8%
Cash-on-Cash: 4%–6%
Equity Multiple: 1.5x–1.7x over 5–7 years
Typical Structure: Stabilized, cash-flowing properties with high occupancy and credit tenants
Value-Add / Opportunistic (Moderate to High Risk – e.g., light to heavy renovations or lease-up strategies):
Target IRR: 12%–17%
AAR: 10%–14%
Cash-on-Cash: 6%–8% after stabilization
Equity Multiple: 1.8x–2.2x over 5 years
Typical Structure: Properties purchased below market with clear upside through renovations or operational improvements
Development Projects (High Risk – ground-up, entitlement, etc.):
Target IRR: 18%–25%
AAR: 12%–18%
Cash-on-Cash: Low or none during development phase
Equity Multiple: 2.0x–3.0x+ over 3–6 years
Typical Structure: New construction with greater entitlement, cost, and market risk
Debt Investments – Senior Debt (Low to Moderate Risk):
Target IRR: 8%–10%
AAR: 8%–10%
Cash-on-Cash: Interest only
Equity Multiple: N/A
Typical Structure: Secured note with priority lien position and fixed return
Debt Investments – Mezzanine or Preferred Equity (Moderate Risk):
Target IRR: 10%–14%
AAR: 10%–12%
Cash-on-Cash: Interest only
Equity Multiple: N/A
Typical Structure: Subordinated debt or equity-like instrument with fixed coupon and possible upside
Distressed Asset Investing (High Risk – e.g., foreclosure, tax deeds, non-performing notes):
Target IRR: 20%–30%+
AAR: 15%–25%+
Cash-on-Cash: Minimal during hold
Equity Multiple: 2.0x–3.0x+
Typical Structure: Heavily discounted acquisitions with legal or market barriers; exit through resale or rehab
Fractional / Private LP Deals (Moderate Risk – e.g., syndications, private placements):
Target IRR: 12%–16%
AAR: 10%–14%
Cash-on-Cash: 7%–9% in stabilized years
Equity Multiple: 1.8x–2.0x over 5 years
Typical Structure: 6%–8% preferred return with a 70/30 or 80/20 LP/GP split, often with waterfall structures
