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Updated about 5 years ago on . Most recent reply

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Newbie question: Cash flow vs Profit

Daniel Lascalles
Posted

Hey all! I've been just lurking and learning, but now I need help to clarify some terms. I thought I understood the concepts, but when I read this blog by David Greene and another on Bigger Pockets versus what other websites tell me, I got confused. Are they saying the same thing, but I'm just getting caught up in semantics?

E.g:

David Greene: "Cash flow is defined as how much money is leftover after all expenses are paid on a rental property."

Isn't that profit? 

Quickbooks: Profit is defined as revenue less expenses. It may also be referred to as net income. Cash flow, on the other hand, refers to the inflows and outflows of cash for a particular business.

BalancesMB: Cash flow is the money that flows in and out of the firm from operations, financing, and investing activities.

Thanks for your help!

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Nicole Heasley Beitenman
#5 Medium-Term Rentals Contributor
  • Investor
  • Youngstown, OH
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Nicole Heasley Beitenman
#5 Medium-Term Rentals Contributor
  • Investor
  • Youngstown, OH
Replied

Look at it this way:

Say you have a property that rents for $500 a month. The mortgage payment, including taxes and insurance, is $350 a month. You pay the property manager 10%, or $50 a month. 

That means you have $100 a month left over as profit. 

Fortunately, BP has taught you to be a smart investor, and you also set aside 25% of the rent each month for vacancy, repairs/maintenance, and capital expenditures. So you put that $25 a month into a separate account. You don't count it as cash flow (or at least, I wouldn't), but it DOES still count as profit until you actually spend it on an expense. 

  • Nicole Heasley Beitenman
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