Cash flow necessary for long buy and hold?

[Chris Ruud]

Hey everyone.  First time poster here, but I've been reading up on real estate investing and this site a ton over the last few months, and I'm hoping to purchase 1 or 2 properties in the relatively near future to buy and hold for a long time.  As in, I'm 30 now and I'd hope to keep them until at least when I'm 65+ and use the rental income to supplement whatever other retirement income I'd have, or potentially sell them at that time to fund retirement. 

My question is this:  For someone in my situation, really how important is initial cash flow?

Trust me I understand that having initial cash flow is preferable to not having cash flow, but as most of you know in my market (Los Angeles area) having initial cash flow is tough when rents are commonly nowhere near the 1% rule.  A 500K house would typically bring in around 2500-2800 in rent.

Here is my thinking, and I'm hoping someone can correct me if I'm seeing something wrong here.  Assume I buy a 500K house now, and my income matches my expenses exactly and am therefore at zero cash flow.  Let's also assume the absolute worst and this property never appreciates, and even worse I am never able to raise rents.  So I move along for 30 years making no monthly money cash flow wise.  

But at the end of this 30 years, I now have a 500K house owned free and clear.  I can sell it and have 500K cash.  So really I have made 500K in 30 years, which works out to be $16,666 dollars per year.  Making almost 17K per year doesn't seem all that bad to me, for the minimum amounts of time and energy required to manage a single house.

And of course, appreciation and rental income is highly likely to increase pretty substantially over the course of 30-40 years, which puts me in an even better situation.  In reality it wouldn't take long for me to be cash flowing, and by retirement I'd be cash flowing pretty well.  So in reality my total profit is more likely to be in the neighborhood of 1M or 1.5M, or could be more.

Again I'm not thinking that cash flow shouldn't matter to anyone, or that I shouldn't also try to get a great deal, just trying to understand my specific perspective.  It just seems to me that with an extremely long buy and hold, you can't really go too wrong. Thoughts?

[Allan Rosso]

@Chris Ruud I'm going to go off topic here, because you said something that caught my attention. There is no need to eat up the whole $100k you have available to invest, by putting 20-25% down on 1 - 3 houses. Of course it will take more work than simply buying a move in ready home at full value, but there are creative ways to invest, where you wont have to dip so heavily into the funds available to you. 

For example, my first rental was a bank owned home that had failed to sell at auction and was literally just sitting there. I purchased it for $77K with it needing a new roof, all new appliances, necessary plumbing work (which of course adds the need for drywall work), interior paint, carpet in three rooms, among other things. Even with all the necessary repairs, it appraised for $114k. I got a construction loan, and after everything was said and done, I was about $92K in. Because I had so much equity before I repaired it, I was able to finance the closing costs into the new loan, once I refinanced out of the construction loan. Virtually the only out of pocket expense was the original inspection, as well as lots of little things here and there that I paid for myself, rather than charging to the construction loan. 

I understand deals like these are not very common, and I feel extremely fortunate to have had it come my way. I was actually thinking I was going to end up having to pay for the closing costs myself, before I knew it could be financed into the mortgage, but I would rather pay 3-6% in closing costs out of pocket, than a 20-25% down payment on a move in ready house.