Cash Flow Example

Cash Flow Example
Video Transcription

Speaker 1: What’s going on guys? Hey, here for another white board. What I’m going to do today is do a cash flow example, all right?

So, cash flow, is like blood to a business. If you run out of cash flow, your business dies. That’s just how it works. Now, in the real estate world, when it comes to cash flow, they can provide certain things like blood provides life, right? Well, guess what? Cash flow can do the same thing. They can… It can produce freedom, which gives you a better life.

So anyway, we’re not going to go into all that. Give you an example of cash flow. This is it in it’s most simplistic form and I hope this helps you guys kind of understand it, because when you’re looking at financial statements with a bunch of different companies, or if you’re analyzing stocks at [inaudible 00:00:49] fundamentals, looking at a property, it really boils down to two things, all right?

So, let’s do… It is income minus expenses. Ta-da! That’s it guys. That is what cash flow is. Now let’s say you’re talking… that’s if you’re talking about a business. Let’s say you’re talking about a property, okay? So, there’s a difference, and I’ll do another video on NOI, in fact, I’m going to be doing that in the next video you guys are going to see.

So cash flow equals income minus expenses, all right? So let’s do a really quick example here. Let’s say you’ve got a property that is bringing in… Yeah, we’ll go on this side over here. Let’s say that property is bringing in $1,000 dollars a month revenue, okay?

Let’s say, after all the maintenance and everything, let’s say you have… You add in your maintenance cost, you add in… let me think, taxes, insurance, all those things. Well, let’s say that all comes out to $800 dollars per months. Op. Not $8,800. All right. So $1,000 minus $800. That’s $200 dollars cash flow per month, right? Super simplistic.

Now, if we’re talking real estate cash flow, it’s calculated a little bit differently, right? The same two steps, but what we’re going to do is you’re going to add one extra thing in.

So, cash flow is income minus expense. All right? But then, with real estate, you need to minus out debt payments. This is cash flow in real estate. Okay? So, income minus expense minus debt payments is cash flow. Example, of course. So, let’s say you have that same house. $1,000 dollars a month, okay? Let’s say you had the $800 dollars in expenses for that property, insurance, maintenance, all that good stuff calculated in, all right? But then what we’re going to do is, we’re also going to minus out the $300 dollar payment you have on the debt every month, okay?

So, let’s take a look at this deal. $1,000 minus $800 minus $300. That gives us negative $-100 a month of cash flow. Is that a good deal? No, that’s a garbage deal, all right? And I used it, because you’re going to remember. If I used a good deal, you see a lot of good stuff happening.

Well guess what? When you’re looking at properties, you’re going to see a lot more of these than you’re going to see of other properties that are really good investments. So, we’ll go over that too. You have to go over at least 100 properties before you find a property that’s actually worth crap.

So, anyway, like I said guys, real estate cash flow. Income minus expenses minus debt payment. Then we have, and here’s your example here and cash flow for a just business in general. Income minus expenses.

Now, what’s this in real estate? We’re going to go over that next. Talk to you guys on the next white board.

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