Why ROC vs IRR
Have seen various explanations but none very comprehensive. Why do most investors prefer ROC / UROC to IRR in RE?
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IRR can be manipulated by time and deceiving esp for shorter holding periods, you can get a very high IRR but low ROC or equity multiple. You can't manipulate ROC.
Truth is that none is self explanatory. You should also combine them.
If you’re a REIT or long term holder, IRR is effectively pointless because you want to understand the stabilized return. If you hold long term, I want to understand ROC, CAGR, SS NOI, NOI/Book Value.
If you are investing in a fund, the fund only calculates IRR based on when the capital is deployed. For example, if you gave a fund $100, but they deployed it in year 2 and exited year 3 at $110, they would still say 10% IRR.
On the asset level, it really depends on the type of investment. If you mean ROC as in a multiple on total invested capital, typically long-term investors and investors in general want to see exactly how much capital has grown, let's say they want to double their money in 5 years, which is more important than an arbitrary IRR. If you mean ROC as an in a year of NOI over capital, it's important because different investors are looking for different ways to generate returns - some want higher yield while others want more capital appreciation. If you have a target, it likely means that you need some sort of yield to fulfill investor requirements (REITs for example).
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