Why I Stopped Chasing Equity Deals (And What I Do Instead)

I used to pick deals the way most of us do. Best projected upside wins. Wire the money, check the sponsor's track record one more time, and wait three to five years to see if the plan worked at exit.

I did that for years.

Then in 2019, I actually looked at what that cash flow was made of. My deals, mostly multifamily and commercial, were paying somewhere in the 3 to 8 percent range, which sounds fine on paper. But every dollar of it was performance-dependent. Taxes creep up, insurance creeps up, capex shows up, interest rates move, and that cash flow number moves down with it.

If I'd been in those deals purely for growth, none of that would have mattered to me. But I hadn't built my portfolio that way. I wanted to eventually live off that cash flow, and that's the moment the light bulb went off. You can't build a lifestyle on income that's one bad expense year away from thinning out. That realization changed the whole approach for me.

The Deal Wasn't the Problem

The deals themselves weren't bad. The sponsors were solid, the underwriting held up reasonably well given the market, and I'd probably invest with a couple of them again. The problem wasn't which deals I picked. It was that I'd never asked what order my capital should move in before it landed in any of them.

If you're in equity deals purely to grow your net worth and you're not counting on the income along the way, none of this is a criticism of that. Growth-focused equity investing is a legitimate goal on its own. This is about what happens when that same income also has to cover your lifestyle. The design flaw isn't the absence of income; it's what that income is built on. It moves with expenses you don't control and outcomes you can't schedule, so the moment you depend on it for real life, it stops behaving like income and starts behaving like a variable you're hoping stays in your favor.

I hear this a lot from investors who feel like they've already solved for cash flow. Rentals with a property manager, distributions from a couple of syndications, and the income question feels handled. Fair. But ask what that income is actually riding on. A rental lives and dies with one property, one tenant, one market. Syndication distributions get paid from operating performance, and performance softens sometimes. I've had that happen. It's not a knock on the deal. It's just what concentrated income does when the thing it depends on wobbles.

What I Do With My Capital Now

In 2020, I rebuilt my portfolio around three investment tiers, funded in order, and I still use this sequence today.

First, reserves. Emergency cash and a separate bucket for future deals, both kept liquid on purpose. This tier isn't supposed to grow. It's there so I'm never forced to sell something early or make a bad decision because life happened at an inconvenient time.

Second, income-first cash flow. This is the tier most investors skip because it's not exciting, no ground-up development story to tell at a dinner party. For me it's taken the shape of debt-backed real estate positions: first-lien, shorter duration, no leverage stacked on top of the loans. I'm a personal investor in a fund built this way, one I also work alongside in my day job, and it's the clearest example I have of what this tier is supposed to do: pay you along the way instead of asking you to wait on an exit.

Equity income is what's left over after a property covers its own expenses, so it moves when those expenses move. That's what happened to me. Loan income is different: a fixed payment the borrower owes you contractually, as long as the loan performs, regardless of what their insurance or taxes did that year. Not zero risk, loans can still default, but it isn't built on the same leftover-after-expenses foundation.

It's not a free upgrade from a savings account either. You're trading some liquidity for structure and income, and the return isn't guaranteed. That trade only makes sense if you understand it going in.

Third, and only after the first two are funded, opportunistic deals. Equity, higher-risk debt, whatever fits. This is where the upside-chasing instinct still gets to play. The difference is that if one of these deals goes sideways, it doesn't touch my life, because my reserves and my income tier are already covering the baseline.

The Growth Question

The question I get most is some version of "doesn't prioritizing income mean giving up growth?" It's a fair question, and the honest answer is it depends on what you do with the income.

Distributions from that middle tier can get reinvested straight into funding the third, more opportunistic tier, so income becomes the thing that pays for growth instead of competing with it. Sitting inside a retirement account, that same income tier can also just compound on its own, completely separate from whatever's happening in the equity side of your portfolio. Those are two different mechanisms, and it's easy to blur them together. Growth doesn't require skipping income. Done right, income is what funds it.

Same Money, Different Outcome

Two investors, both starting with $200,000, for illustration. I don't know that every investor's numbers would land exactly like this, but the shape of it is close to what I lived through.

One puts it all into a single equity deal, projected around 6 to 7 percent cash flow at closing. Over three years, rising expenses pull that number down closer to 3 percent, and the eventual return still depends entirely on what happens at exit, which hasn't happened yet.

The other splits it: $40,000 to reserves, $120,000 into the income tier, $40,000 held back. Three years later, that second investor has been collecting steady distributions the whole time, not thinning out the way Investor A's did, and those distributions, plus the $40,000 reserve, are enough to fund a new opportunistic deal without adding a dollar of fresh capital. The first investor has less income than they started with and no liquidity, still waiting on an exit to find out how the story ends. 

Neither return is guaranteed, and the income tier carries its own risk profile that's different from cash sitting in the bank. But one of these investors had options the whole time. The other didn't.

Where I'd Start If I Were Speaking to My Younger Self

I'm not arguing against equity deals here. I still do them. What changed is the order capital moves through before an equity deal ever gets a check written.

If you want to know where you stand, ask yourself three things. 

• Are your reserves actually funded, with nothing extra sitting idle past that? 
• Is any piece of your portfolio built to pay you along the way, or is everything waiting on an exit? 
• And are your riskier deals really optional, or is your lifestyle quietly leaning on one of them working out?

Send me a DM if you want to walk through what you found.