The offering page says 10 to 12% target IRR and then further down there's a line about distributions beginning in year three, which I don't understand if I'm supposedly getting 10% a year. Someone told me IRR and yield are the same thing rounded differently. I'd like to know what number to look at if what I want is money showing up.
Answer
They're different measurements and they're often far apart. IRR, internal rate of return, is the annualized rate that makes all the cash going in and coming out balance over the life of the investment, including the large lump when the property sells. A deal can hit 10% IRR while paying you nothing for four years and then returning a big sum at the sale.
The number that describes checks arriving is cash-on-cash, sometimes called cash yield. That's distributions in a year divided by what you invested. A development deal might target 14% IRR and pay 0% cash for three years, because almost the whole return sits in the exit. A debt investment paying a fixed 9% monthly has a cash yield and an IRR that sit close together, since there's no appreciation event to wait for.
So the line about distributions starting in year three is consistent with a 10% target IRR. The two aren't in conflict.
Target is also doing real work in that sentence. It's the sponsor's projection based on assumptions about rents and a future sale price, and no one owes it to you. If income is the goal, read the projected distribution schedule, the date of the first expected distribution, and the stated lockup, which on crowdfunded deals commonly runs two to seven years.
One more term you'll hit next: preferred return. That's a rate, often 6 to 8%, that belongs to investors before the sponsor shares profit. Many structures let it accrue unpaid and settle at sale, so seeing an 8% pref doesn't mean 8% arrives in your account each year.