Cashflow and what to do with it

Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes

5mo

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.

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Kenneth GarrettPro Member

Investor · Florida Panhandle/Illinois · Member since 2016 · 4k+ posts · 3k+ votes

5mo

@Nicholas A.

I always just banked my cash flow as a W-2 employee. It allowed me to build reserves and buy more properties. W-2 was my stability while I built my portfolio. I continue to buy properties, but more for creating generational wealth for my two daughters.

You’re in a great location aside from the ridiculous property taxes. I bought most of my properties in McHenry County before started investing out of state. Lived in Palatine most of my investing career.

Best of Luck

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Kyle Vogeler

Rental Property Investor · Emmaus, PA · Member since 2021 · 152 posts · 85 votes

5mo

I generally add in reserves when I do my analysis on a property. Then, if cash flow comes in stronger than my analysis, I know I spent less on actual repairs and need to add the extra cash flow into my reserve account for when that big repair hits.

Then, once you have a costly repair month, you can reduce the amount of reserves to offset the increased expense and keep your monthly cash flow/income the same.

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Jaron WallingPro Member

Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes

5mo

@Nicholas A. My wife and I are in a similar situation. I'm 39 and she's 31. We did BRRRR's on the rentals, bought and sold primary residences (value add), and did a flip a long the way. This year we decided to spend some CF on child care. We have no regrets using it to cover a portion of our bills. Have you seen the cost for daycare!?

Does it put a dent in our ability to scale? Sure but who cares? It allows my wife to work PT, we're off on weekends, and it gives us time back. Scaling < time freedom. We started looking at every deal with that lens because you can't get time back.

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Kerlous TadresBusiness Member

Realtor · Columbus, OH · Member since 2023 · 1k+ posts · 1k+ votes

5mo

Most serious investors in the growth phase treat cash flow like a business checking account, not a personal one. You keep reserves, reinvest, and scale, and the lifestyle perks come later once the portfolio is big enough to throw off real money after all the noise. The tax benefits are real, especially depreciation, but they shine brightest when you have enough doors and enough W2 or passive income to offset, so keep stacking and let the portfolio mature before you start pulling from it.

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Nicholas A.

OP

Buffalo Grove, IL · Member since 2017 · 54 posts · 39 votes

5mo

thanks bro this makes a lot of sense

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Arman AhmedPro Member

Real Estate Agent · Columbus Cleveland Dayton, OH · Member since 2024 · 2k+ posts · 916 votes

5mo

Quote from @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.

You’re basically describing the shift most investors go through. Cash flow feels like income at first, then you realize it’s more like operating margin for a business that has real ups and downs. A lot of experienced investors don’t fully rely on it for lifestyle expenses because they want to avoid getting squeezed when vacancies or repairs hit, instead they reinvest it into reserves, debt paydown, or the next acquisition so the portfolio keeps growing and stabilizing over time. Tax benefits do help, but they’re usually more powerful as a wealth-building tool inside the portfolio rather than something you directly “spend” day to day. In practice, the investors who scale fastest tend to keep a tighter separation between personal income and property cash flow, so one bad month doesn’t impact their lifestyle. That mindset becomes even more important in markets where margins are thin, which is why some people look at Midwest deals where cash flow has more cushion to begin with.

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Ashish AcharyaBusiness Member

CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes

5mo

Hi Nicholas! This is a great thread, lots of solid input here. Early on, cash flow can feel like income, but over time I see most investors start looking at it differently. Instead of spending it, they treat it like fuel for the business and use it to keep building wealth over time.

I wanted to touch on the tax side since you asked about that. Depreciation is one of the biggest benefits of real estate. It’s one of the few assets that can depreciate while also appreciating. On top of that, you can usually deduct things like mortgage interest, property taxes, insurance, repairs, mileage, and other rental expenses.

Where it gets really powerful (this is what Kerlous touched on) is when rental losses can help offset other income. That can happen if you or your spouse qualify as a Real Estate Professional (REPs), or if you own a short-term rental and materially participate. In the right setup, those losses may be able to offset W-2 or business income.

Many investors use is cost segregation (where parts of the property are broken into shorter asset lives so you can accelerate depreciation sooner), which can create larger losses upfront, then offset taxes with those losses, and use those savings to roll into the next deal.

That’s how a lot of people scale portfolios by using those tax savings strategically instead of letting them go to waste. I’d definitely talk with a CPA if you think you may be leaving opportunities on the table or want to make sure you’re set up the right way. Happy to connect!

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Seth McGatheyBusiness Member

Real Estate Agent · Milwaukee WI · Member since 2024 · 318 posts · 252 votes

5mo

It is all about what stage you are in your portfolio. If you are in the growth stage, then I recommend all of your cashflow is going back into your portfolio. Eventually you reach the harvest stage.

Usually in the harvest stage you have all or most properties paid off, so you remove the most expensive part of owning real estate. You generally have solid reserves saved up for repairs and expenses. So you only need to worry about replenishing your reserves rather than worrying about if you have enough. And generally you look to be making more than you need. So if you want to live off $8000 a month, you might be cashflowing $12,000. So even on weaker months, you still have several thousand dollars of cushion when you have to absorb vacancies or major expenses.

So it is all a big building and waiting game. Switching modes too early will likely delay when you truly reach financial independence.

P.S. the tax benefits are always there but when you really will benefit is when you retire and can claim real estate professional status. If you make $100,000 as a W-2 employee you will take home $75,000-$80,000. If you are a real estate professional you can take home all or most of that $100,000 if you play your cards right.

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Jose OrtizBusiness Member

Accountant · South Florida · Member since 2026 · 46 posts · 18 votes

5mo

Nicholas...

I remember thinking the same thing when I first started investing… “cash flow = money I can spend.” It doesn’t take long before you realize it’s not that simple.

From a tax lens, the disconnect is that you can have real cash flow and still show little to no taxable income because of depreciation. That’s a benefit..but it doesn’t mean the cash is actually available for lifestyle, especially if the portfolio still needs to support itself.

I suggest to my clients in a growth phase that they treat cash flow more like working capital than income. It builds reserves, covers volatility, and funds the next deal - that’s what allows the portfolio to scale without constantly injecting outside cash.

What’s interesting is once that foundation is in place and there’s consistent excess cash flow, the conversation starts to shift. It’s less about whether you have cash… and more about where that capital should live to give you the most flexibility long-term. That's where having the right strategy pays off.

Early on though, stability and reinvestment usually win.

On the tax side, scale helps - but mainly in keeping income sheltered within the portfolio. Unless you have other passive income or qualify as a real estate professional, those losses typically don’t offset active income...they just carry forward.

So the idea of having your properties cover personal expenses isn’t wrong - it’s just more realistic once the portfolio is stable enough that pulling cash out doesn’t weaken it.

I hope that you found this valuable.

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Henry Lazerow

Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes

5mo

Welcome fellow IL user! You want to hold some reserves for costly repairs/vacancy. I keep my taxable brokerage account 80 VTI/20 VGSH and the VGSH is very low volatility so works fine for my property reserves and allows me to spend cashflow as I want. Many do live fully off the rental income especially after its been many years ownership and properties grown.

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Matthew Thornton

Member since 2025 · 104 posts · 37 votes

5mo

If your still in the Growth phase, reinvest it. The real wealth is created down the road as you 1031 and refinance (Loan is non taxable)

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Garrett CrosbyPro Member

Real Estate Agent · Los Angeles, United States · Member since 2021 · 392 posts · 162 votes

3mo

The mindset shift you're describing is one of the most important ones in this game. Early on, cash flow feels like income. As you get more experienced, you realize it's more like operating margin for a business — and a business with lumpy, unpredictable expenses at that.

In the acquisition phase I treat cash flow like working capital — reserves first, then reinvestment, and whatever's left over after that can potentially go toward lifestyle. The mistake most investors make is not having enough reserves in the reserves bucket before they start drawing any income. One major capital expense (roof, HVAC, foundation issue) without reserves can wipe out 6-12 months of cash flow and create real financial stress.

On the tax side: depreciation is real and meaningful, especially once you scale. But it's most powerful as a tool inside the portfolio rather than something you spend. The goal is to use it to shelter income that stays in the business and compounds. The lifestyle income comes later when the portfolio is producing enough surplus that drawing some doesn't slow down the flywheel. You're asking the right question early in the journey.

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G. Brian DavisPro Member

Investor · Hatboro, PA · Member since 2016 · 2k+ posts · 850 votes

3mo

I think what you're experiencing is pretty common. Early on, many investors view cash flow as spendable income. Over time, they realize that some of that cash flow needs to be reserved for repairs, vacancies, capital expenditures, and future opportunities.

Many investors in growth mode reinvest a large portion of their cash flow rather than spending it. That's often how portfolios scale from a few properties to many. As for tax benefits, they can absolutely improve your overall financial position, but they're usually best viewed as a bonus rather than the primary reason to invest. I'd rather own a property with strong fundamentals and good cash flow than one that only looks attractive because of the tax benefits.

For someone still in acquisition mode, I'd probably focus first on building reserves and creating options for the next deal before using rental income to fund lifestyle expenses.

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Cashflow and what to do with it

Cashflow and what to do with it

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