What is negative cash flow?

Definition of Negative Cash Flow

Negative cash flow is a situation where the expenses during a given period are higher than revenues, during the same period. Negative cash flow does not necessarily mean a loss, although chronic mismatch could indicate either ineffective credit management, fraud or actual loss. In real estate, negative cash flow means an investor is putting more money into a property than they are getting out of it, resulting in a net loss of money.

 

Why is this term important?

If a real estate investor is in a period of negative cash flow, they will need to spend more than they earning. This can occur even when the investor is earning an overall profit on the real estate investment.

Examples of term

An apartment building that cost more to maintain than the landlord received in rent would be in a state of negative cash-flow.