Quit your W2 with cash flow - wrong idea

[Marcus Auerbach]

If you are investing primarily for cash flow you are barking up the wrong tree. Once you have aggregated a small cash flow portfolio, you'll be so busy landlording that you wish you kept your W2. 

Instead, build an equity portfolio, stabilize it and then start doing annual cash-out-refis in an amount that matches your annual equity appreciation. It's 100% tax-free income forever and you never have to increase leverage or even touch your cash flow.

People who primarily "invest for cash flow" don't have a very deep understanding of REI principles. Tell me I'm wrong!

[Greg Scott]

You have some valid points, but I would like to present a counter-argument.

I agree that people that only buy properties that have the highest pro-forma cashflow, often are buying in rough parts of town.  They are management-intensive to operate and rarely does the predicted cashflow match the actual cashflow.  Trying to get to the bare minimum cashflow number to leave your job is extremely risky.  On this we are aligned.

On the other extreme, investing for pure equity growth can be equally disastrous.  As you know, real estate goes through cycles.  If you are relying on doing a re-finance every couple of years and you hit a dip in the cycle, you could be in trouble.  You may be forced to sell in a down cycle and you may never be able to recover.  This is happening to people in commercial real estate right now.

I like being somewhere in between.  I want consistent cashflow to handle my day-to-day living expenses.  I never want to be forced to sell in a down market.  In an up market I can harvest gains and re-invest in further growth opportunities.