What do you mean cash flow positive? - MoneySense

What do you mean cash flow positive?

First rule of real estate investment: it must be cash flow positive. Second rule of real estate investment: define cash flow positive.

(Getty Images / Pavlen)

(Getty Images / Pavlen)

The first and only rule you need to follow in real estate investment is that the property must be cash flow positive.

Sounds simple, but there’s a great debate that ensues when you ask people to define “cash flow positive.”

For some, like Cindy Wennerstrom, a former McCain’s marketing director turned full-time real estate investor, cash flow positive equates to a monthly profit after all real and potential costs are taken into consideration.

For others, like Red Dear-based Shannon Pineau, a former nurse turned investment consultant, a property is a good buy as long as she breaks even every month (all things being equal).

So who’s right? That depends on your reasons for investing in property. For people like Cindy—who now uses the rent she collects as her primary source of income—there’s a necessity to be more than cash flow positive. She has to be profitable.

Shannon, on the other hand, doesn’t live off her monthly rents. Instead, she sees her two rental houses as a chance to take charge of her future financial security.

Neither investor is wrong—just different requirements and the same principles would apply had these two women decided to invest in the stock market. Cindy would probably be plowing her money into blue chip, dividend stocks, while Shannon would opt for a mid- or small-cap equities.

Regardless of the reasons the bottom line is: your rental cannot cost you cold, hard cash each month. That’s just a sinking ship.

Read more from Romana King at Home Owner on Facebook »