When we were deciding which direction to go with Meadow Arbor 1 (whether to sell it or lease it), Lee kept using the term “cash flow” to describe the outcome of both scenarios. Some of the team got confused by the use of the term “cash flow” to describe the result of a sale, expecting instead to hear “profit”. Here’s sort of how I explained the difference:
If we were treating each property as a one-off project, or if we only had one or two projects a year, it might make sense to discuss the “profit/loss” of each one separately. When your business is real estate investing, you’re not looking at these as one-offs. Selling a house is simply part of the operation of the business. It’s a process. We have systems in place and we allocate resources together to acquire, rehab, and then either flip properties or lease them out. This process is the operation of our business. So, it’s right to talk about cash flow as the result of operations. Our “profits”, from a company standpoint, will be seen at the end of year as the cumulative effect of that year’s operations.Hermann says please like and share!