I’m sure that you’ve heard of the term cash flow before. It’s pretty trending to talk about cash flow, especially when it comes to real estate. However, do you actually know what cash flow is? Let’s do a simple example. I find a three bedroom, two bathroom house that is selling on the market for $58,000. The house is in a great neighborhood, and is solidly built. The previous owner was an elderly lady who passed away. Her kids have inherited the house, and no longer live in the area, so they just want to sell the place as quickly as possible. There are no structural issues with the house; it is just outdated, and well…ugly. I estimate that it will take $10,000 to fix up the property, which is mostly painting and some minor kitchen and bathroom remodeling, and reviving the hardwood floors that were hiding under the 1970’s carpets. Can I make money on this deal? To find out, I have to some math. I know that I can rent this property for a minimum of $900 as I have properties in the same area and are the same size that rent for that amount. If I take the asking price of $58,000 plus the estimated repairs of $10,000, I would get $68,000. If I put the $68,000 into a mortgage calculator and do a standard 30 year mortgage, then the payments would be $428 a month. I have to add a little bit of money for property taxes, as well as some money for insurance and repairs, so we will tack on $172 for that. So $172 plus $428 equals $600. If we take the $900 in rent every month minus the $600, that would give us $300. That is $300 in cash flow every month. That means every month someone else is paying for the mortgage and we are still making $300. Now this is a super simple example, but hopefully it helps to explain what cash flow is for people who have a hard time understanding it.