Quit your W2 with cash flow - wrong idea

Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes

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!

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Greg ScottPro Member

Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes

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.

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Henry ClarkPro Member
Developer · Member since 2020 · 4k+ posts · 4k+ votes
1y
If you do decide to retire and take some cash out. You might join the Iowa Self storage Ferrari F50 club. Stopping in Siena on an anniversary tour of Italy. Got to love commercial real estate.
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Charles ClarkBusiness Member
Real Estate Broker · Milwaukee, WI · Member since 2020 · 306 posts · 209 votes
1y
@Marcus Auerbach
Interesting take—and I agree to a point. Equity plays can absolutely build wealth faster, especially if you're in strong appreciation markets and know how to stabilize well. But not everyone has the risk tolerance or capital to go that route, especially newer investors.

Cash flow might not make you rich, but it can de-risk your portfolio, cover expenses, and give you more flexibility—especially if you're investing out-of-state or planning to exit the W2 eventually.

That said, a hybrid approach (equity + cash flow) might be the sweet spot depending on your goals and stage. Appreciate the perspective though—curious how you’d structure the first few deals for someone starting out?

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- Marcus Auerbach
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  Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
  1y
  Quote from @Charles Clark:
  
  @Marcus Auerbach
  Interesting take—and I agree to a point. Equity plays can absolutely build wealth faster, especially if you're in strong appreciation markets and know how to stabilize well. But not everyone has the risk tolerance or capital to go that route, especially newer investors.
  
  Cash flow might not make you rich, but it can de-risk your portfolio, cover expenses, and give you more flexibility—especially if you're investing out-of-state or planning to exit the W2 eventually.
  
  That said, a hybrid approach (equity + cash flow) might be the sweet spot depending on your goals and stage. Appreciate the perspective though—curious how you’d structure the first few deals for someone starting out?
  
  Ask ChatGPT
  
  Starting out you need to find a balance between equity and cash flow. You are absolutely right:new investors typically don't have the capital or the skills to go after equity deals. Best to the best property you can find that will still provide a little year-one-cashflow (or at least break even year one if you have strong W2 income).
  My original post is very abbreviated: I am talking about the end game, basically phase 3 of your investing career. I have been doing this long enough (over 15 years) that I start looking to the horizon. But as the saying goes: start with the end in mind.
  Most small or medium size investors have never taken money out of their REI, always reinvested, improved and expanded. And they are obsessed with paying it off, even if that is the last thing they will do.
  It's hard to change financial habits, ironically that's also true for lifelong in-vestors. We all got into REI for a better lifestyle. So what I am suggesting for phase 3 (retirement) is to take 3-5% of your equity out every year (tax free) and blow it: take your grandkids to Disney, pay your kids mortgage off, treat yourself to an Antarctica cruise, whatever
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Charles ClarkBusiness Member
Real Estate Broker · Milwaukee, WI · Member since 2020 · 306 posts · 209 votes
1y
@Marcus Auerbach

Great perspective — equity and tax-free refis are powerful tools. But cash flow still matters, especially for those aiming for income now or early retirement. The key is knowing when to prioritize each. Balanced strategy > either/or.

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