Why is cash flow important to many here?

[Stuart M.]

I was thinking in a long term view.  Take two examples, tell me which you'd buy.

House 1:

100k house, 5k down, 20k in repairs

Rents for 2k

Cash flow is 500/mo

House 2:

500k house, 25k down, no repairs

Rents for 4k

Cash flow is 0 after PITI, Insurance, etc.

House 1, in 30 years you own a house free and clear that is worth 217k, and if you saved the 500/mo at 7% return, 640k in the investment acct, 857k total.

House 2, in 30 years you own a house free and clear that is worth 905k, even ignoring cash flow from rent raises for year 2-30.

A few notes.

In both cases, I assume house appreciation tracks inflation (2%) as it has on average for a long time.  If you assume greater appreciation, House 2 does even better.

I included no "cash flow" for house 2 but I assumed 2% increase in cash flow for House 1 yearly.  However, House 2 would probably begin to cash flow in year 2 at first rental raise, and I didn't include any of that in the long term projections.

Also, why do people consider House 1 to "cash flow" if the mortgage is paid down $137 in month one and you get $500 cash ($637 total), but House 2 doesn't "cash flow" even though the mortgage is paid down $684 in month one?  Both are off an initial 25k outlay.  Both seem like money in the bank to me.

It seems to me that we're investing in land here (there is not much of a price difference between a water heater for a 500k house and a 120k house or a call to unclog a toilet - in fact, those numbers work against House 1 - and usually a majority of the difference between a 500k house and a 120k house is the dirt it sits on) and if that's the case, aren't we aiming to leverage as much money as possible to buy as much land as is possible, in the long run at least, and have some tenants make the payment for us in the meantime?  Seems like appreciation is the key.

What's your take on this.  What am I leaving out, missing, etc, I'd like to hear other opinions.