Which scenario best illustrates positive cash flow?

The scenario that illustrates positive cash flow is one where a rental property generates more income than its expenses. Positive cash flow occurs when the revenue brought in from the property—such as rent—exceeds costs such as mortgage payments, property taxes, insurance, maintenance, and other operational expenses. This surplus enhances the financial health of the property owner, allowing them to reinvest, save, or allocate funds as they choose.

In contrast, a property with no tenants would not generate any income, leading to negative cash flow due to ongoing expenses without any revenue. A home that has increased in market value reflects appreciation but does not account for actual cash flow, which is dependent on income and expenses. A small property needing extensive renovations may incite high upfront costs, and if it has no tenants, it would also lead to an unfavorable financial situation. Therefore, the best representation of positive cash flow is the rental property generating more income than its associated expenses.