The Myth of Cash Flow
16 Replies
- 1yAustin WolffPro MemberRental Property Investor · Los Angeles, CA · Member since 2024 · 139 posts · 134 votes
Couldn't agree more.
- 1yRandall AlanPro MemberInvestor · Lakeland, FL · Member since 2017 · 1k+ posts · 1k+ votes
Minor Counterpoint:
First, I’m no influencer, just an investor. While the broader point of “you will make more money off appreciation than cash-flow” I would agree with on a long term basis , the original posting takes a very “in today’’s market” perspective as to cash flow in my opinion.
When interest rates come back to more reasonable levels (say mid to lower 5’s), and /or rental rates reflect the actual higher purchase costs of the houses available in the market, cash flow will be a bigger part of the conversation again.
Having started in real estate 8 years ago, we have ridden a very profitable wave that has combined appreciation gains, with mortgage paydowns that have allowed us to both pay off properties, refi properties from higher rates to lower rates ( up to several years ago), and take natural rent appreciation gains to where cash flow provides us a significant income (more than replacing 2 corporate incomes.)
Beyond all the typical advantages you get with holding properties…like depreciation, the write-offs for all the business expenses funneled through the company significantly lowers the amount of distributions required to come to you personally. Our car payments run through the business, auto insurance, health insurance, internet bill, etc, etc. and yes, some of those things are prorated between personal and business expenses… but there is a significant tax savings by running expenses through the business. The ability to take draws, and a limited amount of W2 income is another big advantage.
When we started in real estate we looked for around $300/door for cash-flow after expenses and a maintenance reserve - which we thought was optimistic- but we found it looking hard enough for deals. Our per door cash flow today exceeds $750/door in our 37 unit portfolio. I only give the numbers to say that cash flow CAN play a significant role in your real estate endeavors over that long time you have to wait for the appreciation to happen. The $100 net profit figure in the original article is in my opinion as wrong as the “look at me playing on the beach all day as a care free landlord imagery” I’m not saying the $100 figure is a lie in todays market… heck many of those calculations can even be upside down… but given smart purchases, time in the market, and being open to other smart moves along the way - you can, and will be able to change your cash flow position to where it can play a far more significant role in your portfolio than where it may start out at today.
For clarity, some of the ways accomplished that was taking a few of our least favorite properties and selling them - taking the appreciation gains, paying the taxes on it, and then paying off other properties in our portfolio. We also did several flips along along the way as well… also using some funds to pay down debt. Again, this also reinforces the value of appreciation.
Across our 8 years, we have gone from 19 loans to 6 loans - some of those were refi’s where we combined multiple higher interest loans into a lower rate commercial loan when rates were in the 3-4% range and even did cash outs to pay off other higher interest properties.
At the end of the day you do what the market tells you to do at that particular time. We haven’t bought a property in the past 2 1/2 years yet have bought 2 in the past 6 months as things have improved in our area. I personally wouldn’t buy a house that only cash flowed $100/month - in any market - be it today or yesterday’s. But would buy one that cash-flowed $300, with the anticipation (and knowledge) that cash flow number will grow over time.
Randy
This. It's not a simple black or white thing of course, but as usual he built a weak case to support his view. Leaving out rent price growth as a major factor is cheating, especially when he's talking about appreciation being the BIG BUCKS. They go hand in hand! Even modest 2-3% (AKA barely keeping up with inflation over the long haul) annual rental price growth leaves properties cash flowing very nicely after several years or a decade. If you're intentionally investing in a high growth/hot area it could be considerably more than that.
Frankly, appreciation both in terms of sale prices and rent prices needs to come WAY down. This whole housing shortage nonsense has severely damaged the economy, and completely screwed over what is now multiple generations of people. Debatably younger Gen Xers, Millennials, and now Gen Z have all had their economic life story arc severely hurt by high housing prices. I say that as somebody that passed on buying in a hot market in my 20s, and then got priced out, and really only got on the right side of things after moving. I've since benefited, but remember what it was like being on the wrong side of the equation due to random timing of things beyond my (or any one persons) control, and despite being a high earner.
So if anything returning back to a decent cash flow, modest appreciation environment is where we need to be, and eventually the market will get it there. Builders are still going gangbusters where I live even with the slow down. So this "Don't worry about it! Lose $1,000 a month! You'll make it up in appreciation!" is a dangerous game, as it leaves you vulnerable the second appreciation stops... And cash flow never does. But also THAT is more likely a market force that will dry up vs cash flow slowly but surely helping you make bucks over the long haul.
- Rental Property Investor · Pasadena, CA · Member since 2020 · 19 posts · 9 votes1y
100%! This is why investors need to start thinking outside of real estate to actual cash flowing assets like private businesses and oil and gas deals. Cash flow is that powerful, you just need to find it. We pivoted our business a couple years ago to follow cash flow and are closing on a large Ecommerce business which cash flows so much it would be 30-35% cap rate (compared to a 5-7% cap rate in Multifamily). Cash flow is still king, just not available in real estate (look elsewhere).
- Real Estate Investor · Philadelphia, PA · Member since 2011 · 42 posts · 34 votes1y
Agreed, BRRRR just doesn't make sense any more.
House hacking is great if you're flexible and not quite ready to "settle down" yet.
Flipping might be viable but without a strong value-add component it's exactly the kind of speculative investing that leaves buyers burned in every downturn.
You didn't mention note investing though - I think this is the best strategy in the market today. Especially non-performing notes - where there is tons of value-add potential, deep discounts and cash-flow to generate (upon modification).
- Member since 2026 · 14k+ posts · 5 votes1y
Couldn't agree more! We have these discussions all the time with our investor clients. Just becuase you can purchase a property using a DSCR loan with a 1.00% DSCR (or lower!) doesn't mean it's going to generate anything but losses for the foreseeable future. Sure you may be able to refinance if/when rates drop, but that's not going to produce significant cash flow.
Understanding how all these numbers work is paramount to success in this game!Originally posted by Joe Racamato.
- Attorney · Worton, MD · Member since 2014 · 276 posts · 195 votes1y
I don't disagree that you should not plan to live off cash flow, or that appreciation is a better form of investment if your goal is to gain wealth as quickly as possible. However, I think your numbers are flawed in one respect. You cite the median home price as the purchase price and the average rent as the rental income. Problem with that is that nobody buys the median house to rent. Smart investors only buy property at the entry level home price to use as rentals. I live in an area with much the same rents and median as well as average home prices, but I buy and renovate properties for no more than 70% of your median and rent them for 110% of your average rents. Those deals are fewer and farther between, but they still exist and they have served us pretty well in building a respectable cash flow. That being said, we don't spend the cash flow. We prefer to reinvest in more properties because we recognize that we have gained much much more from the appreciation on our properties than we would have from the cash flow. In other words, you're still correct but not offering an apples to apples comparison.
- Investor · Bremerton, WA · Member since 2015 · 52 posts · 8 votes1y
That's what we've done also, but deals are very hard to find because so many people have watched HGTV and are convinced that they can become rich that they overpay. On the few deals we find we are continually outbid because we won't over pay.
- 1yScott TrenchPro MemberRental Property Investor · Denver, CO · Member since 2014 · 2k+ posts · 6k+ votes
I think that a lot of investors overthink a portion of this. Real estate produces cash flow at a very acceptably high rate... if it is paid off.
It's so much better, relative to the income that it generates, than stocks that it's silly, and so much lower risk than long-term bonds or annuities (real estate makes up 1/3 of the CPI and over very long time horizons it should pace with inflation, while debt will lose value relative to inflation). Real estate income is also tax advantaged, relative to simple interest and some types of business income.
Leverage is a great way to build wealth, if you run an active business, buy right, don't go all in at bad times in the macro, and pay close attention. Paid off rentals are a great way to enjoy Tuesday and take the victory lap.
- Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes1y
It's true that real estate has a decent albeit pedestrian return without debt. But very few people buy real estate that way (other than perhaps buying shares of a REIT). I probably should have emphasized this more but I was coming at it from the perspective predominantly of a new investor trying to get into real estate who will rarely if ever be able to buy all cash. And by using debt, the cash flow is really just a way to stay solvent while you build wealth through appreciation and principal paydown (as well as built-in equity if you bought right).
- 1yCody NeustaedterPro MemberReal Estate Agent · Winnipeg MB, Canada · Member since 2021 · 109 posts · 34 votes
I think another problem with the amount of people talking about BRRRR opportunities is that they never actually buy anything...there are TONS of people who conceptually understand how BRRRR's work and then go out into the market and can't find a deal that allows them to pull all of their investment out, thus believing it is impossible. I have run into a lot of people who are educated investors who have never even sniffed a BRRRR who love to talk about how genius of an investment vehicle it is. Lots of people talking the talk but not walking the walk. In my market you can actually buy BRRRR's that work in terms of the cash investment and refinance ratio, but the rents at the refinanced price rarely allow cashflow.
- Member since 2026 · 14k+ posts · 5 votes1y
Sometimes, to get people to take action, you have to lead with what other's think is what they want. That would be positive cash flow. As they get their first home, see the tax advantages, experience the appreciation, and learn more about real estate, they'll come to realize that what they thought was best (cash flow) isn't what will help them be successful in real estate. As long as they have reserves and can weather hard times, they'll eventually come to realize the power of real estate. Over time, they'll learn and make better choices based on what they learn. What they'll learn is that cash flow is not the best way to build wealth and that all the other benefits of owning real estate, along with some cash flow, is the key. We all have to start somewhere, and if we don't pitch cash flow, investors won't take action. That's my take on cash flow, but I'm still learning. Thanks for the article!
Originally posted by Christopher Stevens.
- Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes1y
Perhaps but I think people should go into real estate investment with their eyes open and understand what (and why) they're getting into it. To buy expecting cash flow and not getting it is likely to lead to disappointment and giving up. Furter, if they can't be made to understand the long term benefits and be satisfied with them as a reason to invest, they're unlikely to have the right mindset to be a real estate investor (at least for now).
- Member since 2025 · 50 posts · 28 votes1y
This is exactly how we’re helping investors—especially those just starting or thinking about getting into real estate. Too many new investors focus solely on cash flow without considering the bigger picture: appreciation, debt paydown, and long-term strategy. At TrueNest, we guide investors in structuring their portfolios for sustainable growth, ensuring they stay solvent while positioning themselves for long-term wealth. If you're looking for a smart, strategic approach to real estate investing, let’s connect!
- Member since 2026 · 14k+ posts · 5 votes1y
I'm not sure what property you're buying for $100K. I would not trust that website at all
Originally posted by Eric Carr.
- 1yDon SpaffordPro MemberInvestor · Idaho Falls, ID · Member since 2016 · 935 posts · 629 votes
This is why I don't buy SFR. And not even most MF. I seek higher cash flows from more unique assets like RV Resorts, service-based businesses, build homes to sell, but then also invest for longer-term wealth in MF developments to hold forever. Most standard value-add MF don't have much cash flow either. I do want cash flow so I invest in assets that can actually provide it, but then I also invest specifically for equity appreciation in some other assets so that I can get the most from each.
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