Sorry, But Cash Flow Alone Probably Won’t Make You Rich: Here’s Why


Almost nothing is what it seems in real estate. This is nowhere more apparent than in income-producing real estate. The entire premise of rentals is not what it seems.

Now, I know that you don’t enjoy hearing the truth that contradicts with your perception any more than the next guy. But it is what it is — take it or leave it!

Why People Buy Rentals

When we talk about rentals, we primarily focus on the income, right? We are not wrong, but neither are we totally right.

Truly, we go “there” to solve a problem — to separate ourselves from the necessity to earn W2 wages. For some of us, it is the reality of our health, and others just don’t like their boss. One way or another, the focus behind generating passive income, which is only passive according to the IRS but not passive at all in reality, is to replace 1099 and W2 income.

This Conversation Could Go Two Ways

I could agree with you. Yes, diversified revenue streams afforded to us by the rentals we own are a good thing. The extreme flexibility of this income as it relates to taxation is also not a bad thing. Combined, yes — we can certainly achieve a measure of financial stability and freedom that are impossible by definition within the sphere of earned income.

Related: The Secret the Rich Understand About Building Wealth (And No, It’s Not All About Cash Flow)

On the other hand, I could also tell you that you are quite stupid thinking that cash flow will make you rich. Why? Because cash flow has never made anyone rich. Equity is the thing that makes us rich.


Let Me Put it in Terms You Can Understand

When you excitedly buy that asset that throws off $400/month of cash flow, what you’ve done, at best, is replaced $400/month of income that you have to earn at your job. OK, if you want to get specific as it relates to taxes, you’ve likely replaced $600/month of income.

But, tell me — are you, or anyone, getting rich off of $400/month of income? I know you’ve been hearing all about how cash flow is the ultimate objective, but when faced with the question, how do you answer — is $400/month of income making you rich?

Related: Why Cash Flow Beats Out Appreciation in Real Estate Any Day of the Week

And the Answer is…

Maybe. It depends on what you can sell this asset for when you are done doing what needs to be done. If you bought it for $200,000 and you will sell it for $200,000, then what you’ve got is not much of anything. However, if you’ve bought it for $200,000 and sell it for $250,000 four years later, then you might have something because considering the principal pay-off, you would be putting in your pocket about $80,000, and having that gives you some options.

Ask me how I know. 🙂



Cash flow is very important. Why? Partially because it gives you some freedom, but also because it helps you to hang onto the asset long enough to reposition it for sale. But understand — equity, just like cash flow, is bought at the front door. It may take time to materialize or liquify, but it should be there from day one. So, a bit less attention to cash flow and a bit more attention to the blend of cash flow and equity might be required at this time.

Hope this helps, guys.

What do YOU think? Do you focus on cash flow, equity or both?

Let me know your thoughts with a comment!

About Author

Ben Leybovich

Ben Leybovich has been investing in multifamily residential real estate since 2006. His area of expertise is creative finance. Ben works extensively with private as well as institutional financing. Ben is a licensed Realtor with YOCUM Realty in Lima, Ohio. He is also the author of Cash Flow Freedom University and creator of a cash flow analysis software CFFU Cash Flow Analyzer.


  1. Brad Lohnes

    Hi, Ben. Thanks for the article. Short and sweet but 100% on target. Without cash flow it’s hard to build a successful / substantial portfolio. But capital gain is the big winner in the longer term. I suppose the whole thing is convoluted by the fact that you can hold onto some rentals long-term and live off the income but you could also roll your equity into another income-producing investment. Same topic but two completely different purposes for discussing it. It is important to be reminded of this regularly. Cheers!

  2. Dawn Anastasi

    Every investor is different. For me, cash flow is #1. I know I’ll have some equity in my properties even at the lower end of the scale (my $20,000 – $40,000 properties). I don’t have to buy a $200,000 house to have some equity. But when I’m dead, where’s that equity going to go? I don’t need to be “rich”. If I have money to do the things I want and I don’t have to worry about money, that’s enough for me. This is definitely not the thought process for everyone, I realize that. But for me personally it works.

    • Ben Leybovich

      Dawn – the thing that comes to mind as I read your post is a phrase: Time and circumstance is the only thing that changes people’s minds…

      The unfortunate thing about the truth in this phrase is that more often than not by the time our minds are changed it is too late to adjust the course.

      That said, all I focus on in the article are the numbers. They are what they are, and as it relates to the IRR, it’s not open to interpretation. That’s the beautiful thing 🙂

      • Matt R.

        I guess it is possible enough cash flow can make you rich and maybe even more likely if you invest your cash flow in something that grows your equity. If one focuses 100% of REI on cash flow perhaps that is closer to a regular business. So like retail store that sells rentals sort of speak. Yes there will still be equity, that is the inventory but it does not organically grow over time like more traditional investments might. Could Dawn make more cash flow with the same amount of inventory value? Most likely yes and much more cash flow. Does she care? Probably not.

    • Pete T.

      Dawn nailed it. Ben, you contradict yourself and fail to realize different goals and different ideas of rich. So, ben, you buy one place and then stop. I guess if you speculated wrong and it lost value, you are stuck. Everyone realizes big gains are made in equity, but everyone loves cash flow bc it’s more predictable and gives you more opportunities to enjoy equity gains, which are usually minimized by replacement costs.

  3. Ryan Werner

    Excellent article. I’m my opinion this just emphasizes the difference between being rich and being wealthy. Cash flow is one key to wealth because it allows you the freedom to do what you want with your life with a steady amount of predictable income. No matter how rich you are if you aren’t making more money eventually you will run out.

    If you quit working today could you maintain a standard of living that you find acceptable without worrying about money running out? If the answer is yes then you are wealthy regardless of your net worth.

  4. William Wilson

    I did enjoy your article and I agree both cash flow and equity are important. I do also agree with the comments in that (my interpretation) life is short and enjoy it the best you can. Spend it the way that makes you happy and cash flow can definitely help that. But, equity gives me a sense of security and cash can always dry up if I use it on travel or something else and other “gotcha” type things happen, which quickly reduce your working capital.

    Thanks again!

    • Ben Leybovich

      William – no argument about life at all. After all, I do drive a Tesla and have not had W2 income in…well, a long time. It’s not because I make too much money – it’s because life is too short to be spent in a cubical…

      Having said this, real estate is what it is 🙂

  5. Besides our primary, we have 5 single family homes. In your expert opinion, would it be best to sell some or all at the top of the market? Or do we pull out equity to finance other investments? If we do sell, do we then hold onto the money for future investments or pay down some of the other properties that we hold on to.

  6. Alex Brookbank

    Completely agree. Cash flow is overrated when it’s 300 a month. BUT 800 or 1,000 a month on a duplex or quad is very consequential :). Cash flow may not make someone rich, but it can create “financial freedom”, and a spring board for other opportunities. I’m learning the best cashflow / equity opportunities are B/C properties on the edge of “A” areas … where I can attract “A” tenants.

  7. Jerry W.

    As usual you provide an alternate look into investing. I agree that equity is probably more important than cash flow for true wealth. My local area struggles to find rental units that cash flow let alone have huge amounts of built in equity or a decent chance at appreciation. However since I anticipate a recession coming to our local area I will try to be ready to make the best of it if the market tanks. I am actually selling a house or two to get cashed up to buy later. We will see how that goes. Thank you for taking the time to write this thought provoking post.

    • Jerry – When do you anticipate this recession? The trouble with keeping a lot of cash around is that it costs you money. Banks are paying approximately zero interest, and inflation is running around 3% a year last I checked. So in ten years – approximately 30% of the value of your cash will evaporate.

      I generally keep about a 100K of liquid assets laying around, just in case I need a roof or an air conditioner somewhere. The rest is in RE.

      It’s a conundrum. Sooner or later there WILL be a crash, and then cash will be king.

  8. One last thing about rental cash flow I recently found out. Something to do with hitting 62.
    “Passive Income” does not count for Social Security. You can make any arbitrary amount you want and still get your full SS check. Here’s a snip from the social security list of earnings
    that don’t count:
    ————– snip —————-
    Rentals from real estate that cannot be counted in earnings from self-employment. For instance, the beneficiary did not materially participate in production work on the farm, the beneficiary was not a real estate dealer, etc.;
    ————– endsnip ———–

    From AARP:
    ————- snip ———————-
    Other kinds of income; including income from rental properties, lawsuit payments, inheritances, pensions, investment dividends, IRA distributions and interest; will not cause benefits to be reduced.
    ————- endsnip —————–

  9. Adrian Stamer

    For properties above 4 units, what the property can make (i.e. The cash flow) directly impacts the value of the property which directly impacts how much equity you have, adjusted for market risk.

    Force the property to have more cash flow and you’ve created more equity, so yes, you can get rich off cash flow.

  10. Christopher Smith

    I think the whole premise of the question is misplaced (i.e., is it one, is it the other, is it both?).

    What is Equity – the value of the property less any debt encumbrance, What is the value of the property – the discounted value of the expected cash flows from the property over time (at least for multi-family properties). So one is nothing more than an equivalent measure of the same overall wealth calculation.

    Reminds me of the debate between dividend stocks and non dividends stocks which is better? The answer is that one is neither better nor worse than the other. They both represent a part of the same wealth equation. Appropriately adjusted for risk and taxes there should be no preference for one over the other.

  11. Chris Field

    Good article equity makes you rich over time while cash flow pays the bills today.

    They tend to go hand in hand.

    Good investments should offer both from day one. I’m 3/4 threw the build on a project now and when it’s completed I’ll have equity ($1m) and cash flow (8k a month) from day one.

  12. gino barbaro

    Once you generate enough cash flow to become financially free, then things become interesting. You can start doing things you never dreamed, and then freedom is indescribable. Cap appreciation is an added benefit. Problem is most investors do not focus on cash flow and focus on the “future”. I speak from a person who has owned properties that do not cash flow. There are innumerable words to describe the feeling of working on a property and not receiving a draw. It leads to burned out landlords.
    So I think in the beginning learn how to buy right but buy only assets that cash flow. If you reposition the property, you will achieve forced appreciation, the icing on the cake.

  13. Chris Emick

    So if I have 10 SFR’s making $400/mo/ea. and that allows me to purchase 3-4 more SFR’s per year also making $400/mo/ea. and can essentially double my net cash flow every 3-5 years….that does not a “rich” person make? Equity does contribute, in the end, to the *rich*ness but, imo, you could still get there even if equity somehow didn’t come along for the cash flow ride, or what am I missing?

      • Pete T.

        Hvac and roof are good points and again circle back to the power in numbers of good cash flow. That equity isn’t paying for that today, but your other places are. And anyone that us buying without reserves is gambling, bc it will happen

    • Ben Leybovich

      Except that in order to sell it for $200,000 four years later – after 4 years worth of tenants, you are going to have to spend that $19,200 to make it sellable. How are you doing with your investment now…?!

      hahah – are you learning yet, or just being annoying? 🙂

  14. Andy Krzanowsky


    Do you plan to capture some equity by selling or exchanging? I guess I’m assuming you, like many others, think the markets are peaking in the next few yrs. It’s quite possible you dont feel that way so maybe I should ask… If you felt the market was peaking would you sell or exchange to capture that equity/appreciation and build up or are you going to hold out for 20+ yrs worth of equity?

    I’m considering selling my single family home to capture that appreciation and equity from it being my previous primary residence. My reason would be to avoid the capital gains and then reinvest when good deals present themselves. My other option is to use my approved heloc from that same rental and purchase more properties. If I go that route I’m giving up the free capital gains in a peaking market but its a great rental as is for my market with no major maintenance for 15 yrs.

    Enough of my story but curious on your approach

      • Andy Krzanowsky

        I realize you get a ton of replies and probably messages but I wish that there was enough content to understand your reply. Many people probably have similar concerns who could all benefit from sharing our thought processes. Thanks for sharing the original article to get my brain working.

    • Lani A. Payne

      Andy, I was faced with this same decision this year, and that’s what I did. I took advantage of claiming “primary residence” on one of my properties that was in Denver. I took advantage of the peaking market, walked away with the gain tax free, and am sitting in cash until I find a good deal. The key to long-term wealth is decreasing or deferring taxes as long as possible (I’m a tax attorney, trust me on the math.) Bad part is that I moved to Dallas, and everything is really over-priced in the areas I’m looking at. Just make sure if you do sell and take advantage of the tax free nature of the transaction, that you know what your next few moves will be, or you could be sitting in cash for quite some time. For me, it’s only been 2 months, but I fear it will be longer, and the idea of not making my money work for me kind of irks me, too. Another option, if you decide not to sell right now, is to find a similar property and do a like-kind exchange (i.e. a 1031 transaction). The IRS will let you defer the tax on the gain if you exchange it for another property. You have to meet certain timing rules, and I’m sure a real estate agent will help, but that’s always another alternative. Hope this helps!

      • Andy Krzanowsky

        Your current predicament is probably my biggest concern. I would hate to be on the sidelines for 2 or 3 yrs. No issues waiting some decent months for a few good dup and quad deals.

        I’m definitely aware a 1031 will allow me to defer my gains and grow faster than buy and sell but this will be my only chance to have virtually zero capital gains.

        Thanks a ton for the reply

  15. Lani A. Payne

    Hey Ben,

    I agree with this article, to a certain extent. I bought my first property in 2012, at the bottom of the market, for 20% below face value. I sold the property a couple of months ago and made a nice profit, but the only way I was able to take advantage of that “long-term” equity build was because of the cash flow that was afforded through renting it out for 5 years. You can consider equity, but you always have to consider cash flow to keep your investments afloat, as well.


  16. Karla Olivares

    Great article! I am a new investor from California still in the education phase. Im interested on buy and hold properties out of California. How do you recommend going about finding a location/market that has cash flow but also potential for appreciation? Any insight would be much appreciated!

  17. Jim Piper

    Hi Ben:

    Always nice to have appreciation. Who would argue against that? The way I learned real estate is that you make your money going into the deal. Meaning that you create your own appreciation by buying cheap. You also create equity by paying your loan down, as you illustrated in your post. But counting on, hoping for, predicting appreciation beyond the built in appreciation you created on the buy is what most investors call speculation. Nothing wrong with speculation, but it’s not necessarily a path to riches. In fact, history is replete with examples of ruin from speculation.

    Ask yourself this question: if you had just made a large capital gain from guessing correctly on the market, what would you do? Right now a million dollars in the bank is going to get you what? Under $10k per year, before tax. So what do you do, you’re a guy whose principle idea is that you don’t get rich without appreciation, right?

    Fortunately, the good news is you don’t need to speculate as you suggest. You buy cheap, you hold. That profit from buying is untaxed, because you’re holding. Equity buildup from loan pay down is untaxed, you’re holding. And in the long term rents are going up. So it’s almost irrelevant whether the market is appreciating because you’re making income, your income is growing, your equity is growing.

    I don’t know you BEN, but I read your articles. You’re a thoughtful guy. I did notice you moved from Ohio. So now you have to count on appreciation, because your market is not income based. So your argument suits where you’re at in life. Enjoyed the article, I just don’t agree with your conclusion.

    Jim Piper

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