Step 1: Make the Caramel

1. In a saucepan over medium heat, combine sugar and a small amount of water.
2. Stir occasionally until the sugar dissolves and turns into a golden caramel.
3. Quickly pour the caramel into individual ramekins or a baking dish, swirling to coat the bottom evenly.
4. Set aside to let the caramel harden.

Step 2: Prepare the Custard

1. In a separate pot, heat the milk and sweetened condensed milk until warm but not boiling.
2. In a mixing bowl, whisk eggs gently until fully combined, then slowly add the warm milk mixture while stirring constantly.
3. Add vanilla extract and mix well.
4. Strain the mixture through a fine sieve to remove any egg solids for a smoother texture.

Step 3: Assemble and Bake

1. Pour the custard mixture over the hardened caramel in the ramekins.
2. Place the ramekins in a baking dish filled with hot water to create a bain-marie (water bath).
3. Bake in a preheated oven at 325°F (160°C) for about 45-50 minutes, or until the custard is set but still slightly jiggly in the center.

Step 4: Cool and Serve

1. Remove the flans from the oven and let them cool to room temperature.
2. Refrigerate for at least 4 hours or overnight for best results.
3. To serve, run a knife around the edges and invert onto a plate to release the caramel sauce over the flan.
4. Optionally, drizzle with coffee or coconut milk for an extra layer of flavor.