What is Considered Positive Cash Flow?

[Sriram Kumar Bikkina]

Hello all, I have a basic investing question: What is considered a positive cashflow when we borrow 100% of the money to invest in a property?

In general and simple terms, it will be the money I gain over the money I spend on mortgage and expenses on that property. But let's say I borrow 20% from my existing HELOC and use these funds to pay as a down-payment towards my next investment property do I need to consider the interest paid on that 20% as well as an expense for the investment property?

The reason I am asking this question is I have looked into a lot of properties and finding the ones with a positive cashflow is very less and 9 out of 10 of these positive cashflow properties are not meeting the requirement if I include the 100% borrowed money towards expenses. 

[Joe Splitrock]

Quote from @Chris Baxter:

@Joe Splitrock  lending, taxation, and investing are all different in Canada than in the USA. This is why we have a Canadian-specific forum.  Interest paid to earn investment income can be deducted from your income on your personal tax return. Most investors here would not assign the carrying costs of the down payment to the specific property in their analysis, especially if the properly is held corporately (which again, has different implications and structures than in the USA).  I completely agree that 'cash flow' is ONE metric, and that other factors absolutely need to be included in an analysis of whether a deal is good or not.  With the average house price in Canada now at $720k  (yup, crazy), the OP is looking wondering how on earth he is supposed to be +ve on a deal with 20% down.

You can deduct HELOC interest in the USA too. Regardless of deductibility, it is an expense is all I am saying. Financial terminology is the same in USA or Canada. Cash flow is income minus expenses and minus debt service. That absolutely includes interest on a HELOC used for down payment.

Maybe the only way to be cash flow positive is finding an off market deal. The other option is accepting a negative cash flow deal, knowing it is negative because you are financing 100%. I do think it is dangerous to pretend like you have 20% equity and ignore the HELOC payment in your cash flow analysis. You need to know how much is this property making or costing every month. If it is losing money, you should calculate future state. Most likely rent increases or refinancing will turn the deal cash flow positive at some point in the future.

The US market really isn't much different in regards to cash flow. When you are financing 100%, there are very few deals that will cash flow, unless you are finding off market deals or not including all expenses like management and CAPEX in your numbers.