Why does cash flow matter

Question

When buying real estate why does cash flow matter if you are getting $100+ per month and it seems such a small amount to generate any wealth?

Eric Gerakos · Answer

Cash flow doesn’t generate wealth. Appreciation generates wealth. Which is why it’s generally better to own fewer but better properties in areas that are desirable VS owning many “affordable” (undesirable) crapboxes in the Midwest. Best of luck to you.

Travis Timmons · Answer

Leverage + appreciation is what earns outsized gains and makes real estate worth the hassle. I'll use a house hack from a member that was posted recently as an example. He bought an owner occupied 4 plex in Chicago - purchase price of 1.5M. I believe he bought it with approximately $50k as a down payment. Let's assume a 3% appreciation rate per year on that. On a $50k down payment, he is seeing a $45k gain in annual (compounding, so that number gets bigger every year) appreciation along with the loan balance being paid down little by little  each month.

Now that example did not cash flow because he lived in one of the units, but if he moves out in a year or two, it will. For $50k, he controls an asset that has the realistic possibility of going up $1M+ in value over the next 10-12-15 years. I realize that those are large numbers, but you get the point. Cash flow/monthly rents are just there to help you hang on to the property to watch it go up in value. And rent appreciation will create the same snowball effect over a long period of time.

Joe Villeneuve · Answer

Cash flow doesn't generate wealth.  It allows the REI to hold a property while that property gains in equity from appreciation, which is how you ultimately gain wealth.

Ian Walsh · Answer

Portfolios tend to have their rough patches in bunches. Everything is going well and then all of a sudden 25% of the portfolio has evictions and repairs.  I have no idea why this happens but the 50% rule is intended to cover you during these times.  Holding costs, evictions, repairs etc.  100/month will be wiped out in 1 eviction easily.

Nadeem Alamgir · Answer

Cash flow is great, but it's just one piece of the puzzle. The real wealth in real estate comes from a combination of your tenants paying down the mortgage and building your equity, long term appreciation, and tax advantages, to name a few.

Think of cash flow as a safety net. It keeps your investment sustainable, helps cover unexpected expenses, and gives you the flexibility to hold onto properties during rough markets instead of being forced to sell at the wrong time. It’s not about making a fortune off $100 per door, it’s about stacking multiple wealth building factors over time.

Dominic Joseph Jean · Answer

@Travis Timmons

So you create wealth through properties appreciating over time by their value going up in the long run? How can I pull that money out and use it to use for normal everyday life?

Dominic Joseph Jean · Answer

@Joe Villeneuve

how can you pull out the equity that's frozen to use it? I'm still not understanding how equity grows wealth?

Dominic Joseph Jean · Answer

How does the equity build wealth over time?

Dominic Joseph Jean · Answer

How does appreciation build wealth in real estate?

Why does cash flow matter

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