What is a realistic IRR for a real estate syndication?

There is no single right number — it depends on strategy, leverage, and risk. The more useful question is whether the projected IRR is supported by reasonable assumptions for rent growth, exit cap rate, and financing. A high IRR built on aggressive assumptions is riskier than a lower IRR built on conservative ones.

What assumptions should I check in a pro forma?

The four that drive most of the return: rent-growth rate, exit cap rate (vs. entry), financing terms, and the timeline to stabilize. Small changes to these swing the IRR dramatically.

What is exit cap rate compression and why does it matter?

It means assuming you sell at a lower cap rate than you bought — i.e., a future buyer pays more per dollar of income. It inflates projected returns and is a common way pro formas flatter themselves. Assuming flat or higher exit caps is more conservative.

How to Tell if a Sponsor's Projected Returns Are Realistic

Short answer: A projected 18% IRR is only as credible as the assumptions underneath it. To pressure-test a sponsor's projections, pull out four assumptions — rent growth, exit cap rate, financing, and timeline — and ask whether each is reasonable for this market today. A high return built on aggressive assumptions carries more risk than a modest return built on conservative ones. The headline number tells you almost nothing on its own.

The number is a conclusion, not a fact

IRR and equity multiple are outputs of a model. Change the inputs and the output moves. So the work isn't judging the IRR — it's auditing the inputs that produced it.

The four assumptions that drive the return

1. Rent growth. What annual rent-growth rate does the pro forma assume? Compare it to the market's actual recent and long-term rent growth. A model assuming 5–6% annual growth in a market running 2–3% is borrowing returns from optimism.

2. Exit cap rate (vs. entry). This is the big one. If the sponsor assumes they'll sell at a lower cap rate than they bought — "cap rate compression" — they're betting a future buyer pays more per dollar of income. That single assumption can manufacture most of the projected return. Assuming a flat or slightly higher exit cap is the conservative, honest posture.

3. Financing. Is the debt fixed or floating? If floating, is there a rate cap, and does it last through the hold? Projections built on cheap debt that resets midway through the plan can evaporate.

4. Timeline to stabilize. How fast does the model assume the renovation, lease-up, or repositioning completes? Aggressive timelines compress costs and pull returns forward. Ask what the IRR looks like if it takes a year longer.

Pressure-test it yourself

Ask for the downside case. A sponsor confident in the deal can show you what happens if rents grow slower and the exit cap is flat. No downside case is itself an answer.
Re-run the exit cap. Mentally hold the exit cap equal to the entry cap. If the return collapses, the deal depends on cap compression.
Compare rent growth to the actual market, not to the sponsor's optimism.
Stress the debt. What happens if rates stay where they are through the hold?

Optimism isn't fraud — but unstressed optimism is a question

Every sponsor's pro forma is optimistic; that's normal. The line worth watching is whether the optimism survives a stress test. A deal that only works under best-case assumptions is a bet on the best case.

Where the sponsor comes in

Realistic projections also depend on whether the operator has actually delivered before. MyLPDeal verifies a sponsor's track record and SEC filing history across 298,000+ operators — so you can weigh the projections against the record.

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MyLPDeal provides public-records verification and analysis, not investment advice or a recommendation. Always do your own due diligence.