Negative Cash on Cash

[Steve Meyers]

I have a property that produces $539 positive cash flow each month.  My question is, when I run the numbers, it shows a negative Cash on Cash return.  I believe this is because I borrowed more than the value of the property, but just wanted to see if the general consensus agrees.

[Account Closed]

Having negative equity shouldn't matter when calculating your COC return. Simply, your COC should be your annual cash flow divided by your total investment. So you should take your annual cash flow of $539 x 12=$6468 and divide that by your total investment. Presumably, your total investment should be the sum of your down payment, closing costs, renovations, and any other expense when you purchased the house. Equity is not a part of the equation.

Additionally, you should only get a negative COC return if one things happens - you have a negative cash flow, which is the numerator in the equation. You cannot have a negative total investment because the lowest you could go for this in the denominator would be $0 (you got something for free).