Once you start using IRR to analyze projects and investments, a natural question appears very quickly: "So what counts as a good IRR?" Is 8% good? Is 15% enough? Should you aim for 25%?
The honest answer is: it depends. IRR is only meaningful when you compare it to something—your cost of capital, inflation, the risk‑free rate, and the risk profile of alternative opportunities.
This guide gives you a practical way to think about "good" IRR levels across asset classes, along with tools you can use to benchmark your own projects.
Already have cash flows? You can calculate the IRR of your project in seconds with our IRR Calculator and then come back to this article to interpret the result.
Start with the basics: inflation and the risk‑free rate
At the very minimum, an investment's IRR should beat:
- Inflation – otherwise you are losing purchasing power.
- Risk‑free rate – the return you could earn with essentially no default risk, such as government bonds in your currency.
If long‑term inflation runs around 2–3% per year and the risk‑free rate is 3–5%, then an IRR of 4% might keep you ahead of inflation but does not compensate you for taking equity or business risk.
Typical IRR ranges by asset class
Exact numbers vary by country and time period, but the following ranges are commonly used as rough long‑term expectations (nominal, before tax):
- Cash & short‑term government bills: 1–3% in normal environments.
- Investment‑grade bonds: 3–5%.
- Broad stock market index (equities): 6–10% over long horizons.
- Listed REITs / core real estate: 6–9% depending on leverage and market.
- Direct value‑add real estate: often targeted at low‑ to mid‑teens IRR.
- Private equity / buyout funds: mid‑teens to low‑20s net IRR (targets, not guarantees).
- Venture capital: top‑tier funds may target 20%+ net IRR, but median outcomes are much lower.
These are only ballpark figures, but they illustrate a key idea: the higher the risk and illiquidity, the higher the IRR you should demand.
Interpreting specific IRR levels
Here are some practical ways to think about common IRR ranges:
- 0–5% IRR: usually only acceptable for low‑risk, highly liquid assets (cash, government bonds). For equity‑like risk, this is typically too low.
- 5–10% IRR: reasonable for diversified public equity portfolios or low‑risk income real estate. For concentrated or illiquid projects, this may be underwhelming.
- 10–15% IRR: often considered attractive for many real estate and corporate projects, especially if assumptions are conservative.
- 15–20%+ IRR: common target range for private equity, venture deals and aggressive value‑add strategies—but usually with much higher risk and uncertainty.
The same IRR number can mean very different things depending on the context. A 12% IRR on a low‑leverage, well‑located apartment building might be excellent. A 12% IRR for a highly levered startup investment could be disappointing.
Project‑specific factors that change what "good" means
Beyond asset class, several factors influence how you should judge an IRR:
- Leverage: Debt can boost IRR but also amplifies downside risk. Always ask whether a high IRR is coming from real value creation or just high leverage.
- Time horizon: A 15% IRR over two years is very different from 15% over ten years in terms of compounding and risk exposure.
- Cash flow pattern: Front‑loaded vs back‑loaded returns, interim negative cash flows, and capital calls all affect how comfortable you feel with a given IRR.
- Concentration & diversification: A 20% IRR on a single startup is not the same as a 20% IRR across a diversified portfolio.
Comparing IRR to your hurdle rate and NPV
In corporate finance, a project is considered acceptable if its IRR exceeds the hurdle rate—often the company's Weighted Average Cost of Capital (WACC). For example, if your WACC is 8% and a project's IRR is 12%, that is a strong signal.
However, as we discuss in IRR vs NPV: Which Metric Should You Trust?, IRR can be misleading for mutually exclusive projects or unusual cash flows. NPV tells you how much value a project creates in currency terms at your chosen discount rate.
For each project you model, it is good practice to look at both:
- IRR vs your hurdle rate.
- NPV at that same discount rate.
You can compute both using our IRR Calculator and NPV Calculator.
Is a 15% IRR good?
This is one of the most common questions investors ask. A simple framework:
- For core real estate or moderate‑risk corporate projects, 15% IRR is often very attractive—especially if assumptions are not overly aggressive.
- For private equity buyouts, 15% may be solid but not top‑tier, depending on the vintage and market conditions.
- For early‑stage venture capital, 15% net IRR might be on the low side given the high failure rates and illiquidity.
Again, context is everything. Compare that 15% not only to other deals, but also to what you could earn in simple, diversified public markets.
Using tools to benchmark your IRR
To make this concrete for your own situation:
- Model your project's cash flows in our IRR Calculator or XIRR Calculator (if dates are irregular).
- Compare the result to long‑term returns on diversified index funds or government bonds.
- Read our guide to investment risk and return to think about how much extra return you should demand for different risk levels.
Key takeaways
- There is no single "good" IRR number—everything depends on risk, time horizon and alternatives.
- As risk and illiquidity increase, the IRR you require should also increase.
- Always compare IRR to inflation, the risk‑free rate and realistic returns from diversified public markets.
- Use NPV and scenario analysis alongside IRR to avoid being misled by a single percentage.
If you are new to IRR, start with our beginner's guide to IRR and step‑by‑step IRR calculation tutorial, then come back to this article whenever you need a benchmark for judging an IRR result.