Cash Flow in Real Estate Defined

Cash Flow Real Estate Defined

Cash flow is such a broad and generic term, but Cash Flow Real Estate gives us focus enough to discuss some very powerful information! There are hundreds of definitions of “cashflow” out there. Most are very specific to the field in which the term is used.

Cash Flow in Real Estate DefinedWhen assessing if a business is on stable ground, for example, the cash flow will help determine if the entity is solvent or not. Or when looking at personal finances we always want to know where our money is coming from and how it is performing.

Whether it be cash which is flowing out of your account or cash flowing into your account. Some would include all your income while others would separate it out by gross, net, and operating after expenses etc…

The combinations of factors that could make up the term is inexhaustible.

The takeaway here is that you need to first decide on what you are assessing. Then you know by which definition you can make your assessments. Make sense? Good.

Let’s focus on real estate and what “cash flow real estate” means.

It comes in many different forms. Though all forms are different the end goal is the same.

Income generated from an asset that is greater than the total expense to operate or hold that asset is considered cash flow or better yet positive cash flow.

It’s vitally important to note that EVERY asset has cash flow. The difference is if it is positive or negative. Every investor is after positive cash flow when it comes to income generating assets. You see, every asset has associated expenses.

With real estate these expenses could include paying a property management company, a plumber, an appraiser, and of course the mortgage and insurance every month.

The goal of acquiring the property in the first place, if you are looking for the good kind of cash flow, should have been to rent the property and receive a rent check that is more than your monthly expenses.

It typically doesn’t matter what strategy you choose to employ, whether that be fix-and-flip, buy-and-hold, developments etc. there will always be a cash flow statement. The trick is to have it be more than the expenses. Simple enough.

For some real life examples from my own portfolio check out Lease Option in Real Estate Case Study and Cash Flow with Equity.

The goal, in the context of this website, is to build a stream of income to either supplement retirement or bulk it up to entirely fund our retirement and our life’s adventures. Why else would we be talking about this?

Special Note: It is NOT necessary to work 35-45 years in order to retire and enjoy life to it’s fullest!

Real estate or investing is typically not a passion for most people. Nor is it my passion; however, I understand that it is a vehicle and if used and operated right will get me to where I want to go!

In essence it is mailbox money!

mailbox money

Cash flow is exactly what it sounds like. Cash or income which flows into an account which then can be used for living expenses, vacations, hobbies, or pretty much whatever you want.

The best part about it is that you don’t have to commute to a job everyday to earn the money. It just flows in without you lifting a finger!

Now that’s liberating!

Leave a comment below!

Cash Flow Real Estate Defined By Joe Nielsen

12 Comments

  1. Hi Joe!
    This is an excellent article!
    This is a subject that I have been interested in for a very long time!
    I have read various suggestions on how to pursue this venture, yet
    because of personal circumstances in my life I was never able to put
    any action to that desire!
    I am looking forward to returning to your site and learning more as this
    is something I may yet pursue!
    Christa:)

    • Hi Chirsta!
      Thanks for visiting!
      My goal is to help anybody learn about
      and ultimately transact a successful real estate deal.
      There is much to learn but with the right resources and people
      it becomes very easy to do and with much less risk.
      Hope to see you back soon!

  2. Lots of great information here Joe, I will be coming back often

    • Thanks Forrest!
      Hope to see you here in the future!

  3. I really appreciate the information you have given me to guide

    • Thanks for stopping by alton.

  4. Such a tricky topic, the trick is how to turn the cash flow from negative to positve after making bad decisions in the past (me, lol). Sounds like you will be coming up with some very interesting articles, I will be back to see what you have to say 🙂

    • Hi Andria,
      Haha yes it can be tricky at times but definitely do-able.
      Yes I’ll be addressing what to do when the cash flow is negative.
      Hope you have recovered from those “bad decisions”.
      Glad you stopped by!

  5. Hi Joe

    Very interesting article , I really enjoy it!
    Thank you again

    • Great to hear Daniella!
      Also thanks for your readership!

      • You can point to most places in the Midwest and prolabby assure yourself that home prices will not drop. I lived in Wisconsin for 30 years and you definitely get a sense that their spending habits are dramatically different than those in Washington DC, which is close to where I live now…and it’s not all about the difference in incomes between these two locales.I generally have found that in the Midwest, people are quite risk-averse. They do not trust get-rich-quick schemes and anything that sounds too good to be true. Even if an investment is legitimate, most people shy away from it because they tend to look at the risks rather than the benefits.Part of this mentality may be that they can live the way they want to, and still be conservative in their investments. It is quite affordable to buy a house with a good-sized yard. And sure, there is not much to do in the evenings or on the weekend, but most of them are not looking for that anyway. That’s why they live there already. And if you’re not looking for entertainment, you’re not going to be spending much money either, and possibly….you may want to sit down for this part….some of them actually save money for a rainy day! What a concept!Their risk-averse nature also leads them to often want nothing for something. It is very common for houses to sit for several months without being sold. Nobody is in a big rush to get another place because they know it will always sit there for a while.There may be a few large cities in the Midwest that could be vulnerable, but I am thinking more about the smaller cities and towns. They never joined the real estate boom….it’s just business as usual for real estate.

        • Hi Cameron,
          Awesome insight!
          There is certainly a difference in markets like you mention. Population, culture, politics, and business are very important factors in determining how a certain market will behave when using their money. I have witnessed first hand that those people you mention do see most investments as a “scheme” or “get-rich-quick” game. In my personal opinion I find it unfortunate that our society is so filled with con-men that when the actual good programs do come along many people simply miss out because they assume it is another scam.
          Very good point on what people “want” or “desire” in life. My dad has this saying, “There’s different strokes for different folks.” Essentially meaning that there is not a “one-size-fits-all” solution out there even though individuals, companies, and government try to tell you differently.
          As far as “saving money for a rainy day” is concerned; that is a very sound practice to have. I do; however, know that all saving and no inflation beating ROI coupled with tax deductions that savings account won’t go very far when it’s finally needed.
          A note about “risk”. Risk is simply a product of ignorance. If I wanted to take you on a plane ride where I was the pilot but never flew a day in my life then that would be risky. But if I was educated and seasoned in the art of flying an aircraft then the risk almost disappears.
          Cash flow real estate is perfect for these cities that never joined the real estate boom because they are stable and offer long term cash flow as opposed to sharp equity increases which in my opinion is no more than buying stock and hoping is goes up. That’s not investing, that’s gambling.
          Great comments Cameron! I hope to see you here again!

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