Cashflow and what to do with it

[Nicholas A.]

I wasn’t sure which forum category this fit best, since there’s a lot of overlap, so I’m posting it here for broader visibility.

I currently own three properties and have been a landlord for about five years. Over time, I’ve started to notice a shift in how I think about cash flow.

At first, rental cash flow feels like profit you can freely spend. But as time goes on, reality sets in: tenants miss payments, unexpected repairs come up, and vacancies sometimes last longer than expected.

So my question is this: do most investors actually avoid living off their cash flow and instead reinvest most of it back into the properties or into future acquisitions?

I’ve heard several investors say they do not treat cash flow as personal income. Instead, they use it to improve their existing properties, build reserves, or create capital for the next purchase.

I've also heard that, especially in the SFH and small multifamily space, part of the long-term goal is to build enough scale that the tax benefits become meaningful.

Is that generally true? And if so, can those tax benefits realistically improve your personal financial position, or are they mainly valuable only within the real estate side of the business? I wanted my properties to pay for my car and for my lifestyle to a degree. 

For context, I’m not retired and do not plan to be anytime soon. I’m still firmly in the acquisition and growth phase.

[Bill B.]

I treated it as an investment instead of a business.  If you want to live off the income instead of working you have to turn it in to a business.  

What I mean by treated as an investment is like your 401k or your Roth etirement account. You don’t expect any cashflow, in fact in those cases you expect massive negative cashflow.  

So I figured out the most I could possibly need. $20k/mo, this was a dream number. That meant 10-12 paid off properties.  So I sank all my “investment funds” and any cash thrown off by the properties in to acquiring properties and paying off debt.  Eventually I sold 2 to retire the remaining debt on the other 10. It took about 10 years (from age 30-40) and I was done. I retired 15 years ago and do what I want where I want. Do I wish I had started at 20 and retired at 30, sure. But I didn’t have all the resources you do today. 

That being said I’ll Finish with two related things. First. I wish I had met my wife earlier and we had kids.  Something to work for and leave the success to. Second. I can’t imagine anyone with kids not trying to do this and instead working 40-50 years until your “kids” are 40+ years old.  That’s what my dad did.  He “hung on” for about 7 years after retiring. Unless your job is saving lives that’s no kind of life. Pushing paper or typing on a keyboard word until you die.  

Once you have “enough” time is worth WAY more than money. Hopefully you realize it when you get there. Good luck.