What does “?????” mean in the IRR cell in the Input column of the investment analysis spreadsheet?
It simply means that the internal rate of return can either not be calculated or is not applicable. It usually signifies an infinite return and hence a great investment! For example, it would not be possible to calculate the return on investment for a property purchased with borrowed money which also produces a positive after-tax cash flow – effectively a license to print money. With no money invested, it is impossible to calculate a return on investment! Such a situation can arise when you have low interest rates and relatively high net rents and non-cash tax deductions (e.g. high depreciation claims). However, if a positive cash flow is generated simply by capitalising the interest, this can result in a negative equity at the end of the projected period. In this situation, the internal rate of return is not applicable as it would actually be a measure of the effective “interest” being paid on the equity being extracted from the property.
