Is Relying on Cash Flow Feasible?
Member since 2023 · 73 posts · 31 votes
Is Relying on Cash Flow Feasible?
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Arn CenedellaPro Member
Rental Property Investor · Greenville, SC · Member since 2008 · 786 posts · 1k+ votesYou hit the nail on the head.
The “retire on real estate cash flow” gurus sell the dream of quick retirement from cash flow.
Buy two houses a year that each cash flow $1000 a month and retire in 5 years, they preach.
Or invest passively in real estate syndications and financial freedom will soon be yours, they promise.
What they don’t tell you is:
In order to owner enough real estate to generate say $10,000 a month income let’s say, you need at least $2M of capital invested in YES cash flowing real estate.
Let’s say one could buy rental real estate that provides a 6% annual cash on cash return. It could be either single family or multifamily. And truth be told, a 6% ConC return year one is hard to find but let’s stipulate to that return.
To get $10,000 a month, $120,000 a year off 6% annual cash on cash, how much capital does one need invested?
$120,000/0.06 equals $2,000,000.
So in my mind the target should NOT be cash flow but rather building net worth.
Despite what the gurus say, sufficient cash flow to be financially free can only come once one has sufficient capital to invest.
Let’s be clear I only buy apartment propeties that cash flow but immediate cash flow to put spendable dollars in my pocket is NOT the primary goal. The primary goal is appreciation adding value building equity and therefore net worth.
I’ve been at this “game” 46 years and there is no magic bullet.
It takes time, discipline and consistent effort.
But it can be done in 10 years.
Of course this means living below one’s means - ie spend less than they make - to develop and build cash and capital that can be invested and then watch ot grow over time.
Hope this helps.
Arn
59 Replies
- 1yJonathan SmallPro MemberInvestor · Suwanee, GA · Member since 2020 · 182 posts · 151 votes
@Theresa Harris good point that cash flow is hindered if you have debt on the property, versus it being paid off. If you keep borrowing against the property you can immediately use the money for other investments.
@Arn Cenedella i agree cash flow is good, but you really need to look at net worth. It has taken me time and I am ok with building long term wealth vs spendable dollars today.
@Mark Cruse when you retire from your W2, how do you plan on living off your real estate? Live off of equity as you sell or live off cashflow.
@Alecia Loveless you mention shifts, are you in healthcare? I am a nurse and can relate to holding a w2 for insurance and being able to flex my income with shift work.
@Kevin Sobilo "You have a lot more control over cash-flow as an investor than you do market appreciation!" well said! What does your typical BRRRR deal look like in 2024 in regards to cashflow and equity?
Cash flow often being reinvested into property expenses, which can make it challenging to rely on alone. Diversifying income streams and focusing on appreciation alongside cash flow creates a more balanced and sustainable strategy. How do you approach balancing immediate cash flow with long-term equity growth in your investments? - Investor · Fort Washington, MD · Member since 2014 · 1k+ posts · 1k+ votes1y
Quote from @Jonathan Small:
@Theresa Harris good point that cash flow is hindered if you have debt on the property, versus it being paid off. If you keep borrowing against the property you can immediately use the money for other investments.
@Arn Cenedella i agree cash flow is good, but you really need to look at net worth. It has taken me time and I am ok with building long term wealth vs spendable dollars today.
@Mark Cruse when you retire from your W2, how do you plan on living off your real estate? Live off of equity as you sell or live off cashflow.
@Alecia Loveless you mention shifts, are you in healthcare? I am a nurse and can relate to holding a w2 for insurance and being able to flex my income with shift work.
@Kevin Sobilo "You have a lot more control over cash-flow as an investor than you do market appreciation!" well said! What does your typical BRRRR deal look like in 2024 in regards to cashflow and equity?
Cash flow often being reinvested into property expenses, which can make it challenging to rely on alone. Diversifying income streams and focusing on appreciation alongside cash flow creates a more balanced and sustainable strategy. How do you approach balancing immediate cash flow with long-term equity growth in your investments?I have enough pensions and investments outside of real estate to sustain me. The cashflow is just extra. I have never depended on it so probably never will. I will probably be like many old school types who start selling off in their portfolio in their 60s and 70s, so they can enjoy and cash in on that built up equity.
- 1yJake BakerBusiness MemberFlipper/Rehabber · San Diego, CA · Member since 2020 · 1k+ posts · 696 votes
Focus on building and maintaining active income first. While many gurus glorify the strategies they're selling through courses or books, methods like BRRRR aren't easy and can put you in a tough financial spot if you're not careful. My bookkeeping firm provides me with a steady active income, which allows me to keep doing deals, cover unexpected expenses, and navigate the occasional black swan event. (virus lockdowns, natural disasters, record-high interest rate hikes, etc.) My bookkeeping firm pays me active income regardless of the economy or who the president is.
BookkeepingRE - Bookkeeping for Real Estate & Service-Based Businesses52 Reviews - Rental Property Investor · San Francisco Bay Area · Member since 2022 · 1k+ posts · 1k+ votes1y
Really great thread. I tried to read most of the comments.
I think a lot of it also depends when someone bought. I know 4 people who are living off their real estate cash flow. One bought in California in the late 1990s to early 2000s. She and her husband quit W2 jobs around age 40 with 4 properties (doors) and stock dividends. The other one is not in California, quit W2 at age 37 scaled from 2014 to 2021 with 5 duplexes, quit W2 during COVID, lives a frugal lifestyle and benefitted from the huge increase in property values and low interest rates. Both self manage their properties.
More recently the other 2 people (in their early to mid 30s) have $400,000+ W2 tech incomes, scaled from 2015 to 2022, turned real estate into a business. I think 90% of the CA investors I talk to are tech workers now. They took a lot of risks that I wouldn't be comfortable taking. The other California investors with more moderate incomes bought years ago and have built wealth from 30+ years of appreciation and small mortgages and their rental income supplements their pension or Social Security and retirement accounts.
I have a small portfolio (Class A in Bay Area and Indianapolis metro area) with significant equity and thought I could achieve more cash flow by buying Class C properties in Indiana 2023... nope. If we are strictly talking about cash flow, I'm cash flowing more from my HYSA and index funds - my net income is $71 a month on this SFH. My only dilemma is how long I should hold onto a Class C for appreciation.
I'm working my W2 job and looking at RE as part of my overall portfolio to retire. I also live in a VHCOL living area and if I lived in another country with very low costs I could possibly live off my cash flow, not happening in the USA for me.
- Real Estate Broker · Bellevue, WA · Member since 2020 · 48 posts · 30 votes1y
This is an excellent question and one that often sparks lively debate in the real estate investing community. Here's my take:
The idea of retiring early and living off cash flow from rentals is often oversimplified in books and podcasts. While it’s certainly possible, the reality is nuanced and depends heavily on how you structure your investments, manage your properties, and account for the inevitable costs of ownership.
1. Cash Flow is Real, But Not Always Passive or Predictable
Cash flow is not a myth—it exists, but it’s not as straightforward as it may sound. The numbers you see in pro formas or calculators often don't account for hidden costs like:
- -Major repairs and capital expenditures (roofs, HVAC, plumbing, etc.)
- -Periods of vacancy or under-market rents
- -Property management fees (if you’re not self-managing)
- -Inflation impacting maintenance and insurance costs
To truly live on rental income, you’d need:
- Conservative cash flow projections: Don’t base your expectations on best-case scenarios.
- A cushion for unexpected expenses: This is where many investors fall short, reinvesting cash flow or dipping into reserves for surprise costs.
2. Scaling is Key for Cash Flow to Work
One or two properties won't generate enough income to "retire" for most people. To achieve financial freedom, you'll need to scale to a portfolio large enough to spread risks across multiple properties while also generating enough surplus cash flow to cover both personal and property-related expenses.
Many experienced investors achieve this by:
- -Strategically acquiring properties in high-cash-flow markets.
- -Utilizing creative financing to minimize initial costs.
- -Diversifying property types (single-family, multifamily, mobile home parks, etc.) to spread risk.
3. Flipping vs. Long-Term Holds
Flipping and long-term holds can complement each other beautifully:
- Flipping generates active income that you can reinvest into cash-flowing properties or other assets.
- Long-term rentals build wealth over time, thanks to appreciation, loan paydown, and potential tax advantages like depreciation.
Flipping alone isn't necessarily a sustainable retirement strategy because it requires ongoing work. You’re essentially creating a job for yourself unless you build a flipping business that can operate without you. On the other hand, combining the two can allow you to grow your portfolio faster, especially if you roll your flipping profits into buy-and-hold properties.
4. What the "Myth" Conversation Reveals
When investors at meetups tell you cash flow is a myth, they’re likely referring to:
- -Poor property management or lack of planning.
- -Investing in low-margin properties where expenses eat up most of the cash flow.
- -Not setting aside reserves or underestimating long-term capital expenditure needs.
It doesn’t mean cash flow doesn’t exist—it means they’ve learned hard lessons about the realities of real estate ownership.
Final Thoughts
If you're starting out, focus on building a strategy that fits your financial goals and risk tolerance. Ask yourself:
- -Do I want to build wealth slowly through rentals, or am I looking for faster, active income through flipping?
- -Am I willing to reinvest my cash flow into the properties and scale my portfolio before drawing an income?
- -Do I want to self-manage, or will I hire a property manager and factor that into my expenses?
Both strategies—flipping and long-term holds—can lead to financial freedom, but the key is to be realistic, patient, and adaptable. Cash flow can absolutely replace your income, but it’s rarely immediate or without effort.
The truth lies somewhere between the podcasts’ optimism and the meetups’ cautionary tales. The important thing is to take action, learn as you go, and refine your strategy along the way.
@Christopher Morris, after being an REI myself since 2019 and our bookkeeping firm serving many REIs who have different strategies/business models, I'll tell you what is super clear to me...
Never rely on rental properties to feed your family. Rental properties are a high CapEx / low cash flow business model by nature. There are a few different ways to make good money with rentals but cash flow is typically the smallest of the income streams for rental properties.
Now, an exception is if you scale a medium/large portfolio of rental properties that have zero debt, then you have the potential to cash flow enough to put groceries on the table.
When you're getting started, you have to get cash flow in place via high cash flow / low CapEx business models. In the RE space, that's typically flipping & wholesaling. Cash flow feeds the family. Once you have more than enough cash flow and it's stable, that's when I would start conducting wealth-building activities such as purchasing long-term buy-and-holds.
This is something I'm passionate about because I see people (including myself back in 2019) buying into the passive income / retire early from rental properties rheteroric and it's just not a thing for 99.9% of people (some find a way to make it work).
This is just my opinion. I know there are exceptions out there.
Hope that helps!- Realtor · Indianapolis, IN · Member since 2017 · 41 posts · 14 votes1y
Great question! I don't think cash flow is a myth, but it’s not as passive or easy as podcasts make it sound. A lot of investors find that expenses like repairs, vacancies, and capital improvements can eat into their margins, especially early on. That said, with smart budgeting and solid reserves, decent cash flow is absolutely achievable—it just takes time to build. Indianapolis (where I'm a realtor and work with all sorts of investors) is a great market to find that and get a mix of solid appreciation too if you know where to buy
- Rental Property Investor · San Francisco Bay Area · Member since 2022 · 1k+ posts · 1k+ votes1y
Going back to cash flow, I'm not sure what location you live in and where you're considering buying but I know investors who are doing mid-term or short-term rentals to get cash flow but STRs are a lot more work. Example: owner bought $1 million SFH in San Francisco as primary, built 400 sq fit ADU, lives in ADU is making gross rental income STR renting out two levels of main house, grosses $13,000 month. Net rental income about a couple thousand each month (they wouldn't give me a specific amount after they subtracted out mortgage PITI.
STRs don't work in every market. I would have thought San Francisco is oversaturated with STRs, but that's what several people are doing, buying primary residence and house-hacking a separate unit on AirBnb. Also MTRs for people who need a temporary place to live due to insurance reasons or home renovation, or traveling professionals.
I know a few people who do rent by the room for long term rentals. They buy a 4 to 5+ bedroom house. I talked to a rep from PadSplit. I may go this route with my SFH rental here (rent by the room, not necessarily have a PM like PadSplit).
- 1yJustin BrickmanBusiness MemberRealtor · San Antonio, TX · Member since 2021 · 502 posts · 274 votes
Appreciation over multiple properties creates wealth. Cash flow will come but can't chase it
Justin Brickman Realty4.9145 Reviews
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