"Cash Flow" is a misnomer

[Jonathan G.]

I thought about an alternative title for this post such as "You're in over your head and don't even know it".  

This post is directed at newbies or "newer" landlords or "accidental" landlords.  I classify myself in the latter.  Essentially, this post is to bring focus and attention to Capital Expenses.  Its one the biggest things I have personally learned on BP. 

Essentially, if you are only breaking even on your current mortgage and rental payments, you are actually going into a financial hole and not even realizing it. Capital expenditures should not be confused with your routine maintenance / repair cost but rather an expense simply related to things wearing out and needed replacement. These are certainties and not possibilities. If you're in this for the long term and are not accounting for eventual replacement of the roof, HVAC, plumbing, paint, floors, carpet, hot water heater,appliances, foundation/framing, landscaping etc, etc, etc, SURPRISE, this things will wear out.  That 27.5 year deduction is not extra money but rather what you eventually going to be spending on replacing things. 

Thanks BiggerPockets for driving this point home to me and lets all try not to allow ourselves to falsely believe we are "cash flowing" on the monthly numbers.  

[Jay Hinrichs]

Originally posted by @Bill B.:

I agree that most investors I talk to want to make “X per month cashflow” when they don’t need the money and it shouldn’t be the deciding factor. Almost nobody on this site would have their life changed by +/- $100/mo cashflow  

Still not as common a problem as people who call an entire mortgage payment an expense. A cash flow negative property can still generate a lot of income.

(Negative cashflow of $200/mo while paying off $1,500/mo in debt for example.)

Some here would end up buying a property that cash flows $200/mo and makes $400/mo while not buying the above property that makes 3x as much. 

Can’t afford to buy 100 negative cash flow properties but is $200-$400 is going to make or break you, you shouldn’t be buying real estate. I’m a small guy and I bought two water heaters last month. There goes $200/mo on one property. 

 ya i always wonder what people are thinking about when they take some pretty serious risk with their credit ext.. to try to find 200 a month or 100 a month positive cash flow.. on non appreciating assets..   I can see it they can scale but so many never do they buy one or two its not what its cracked up to be and the next thing they know they are selling for a loss since the property never went up