Cash flow or equity? The choice is yours to make.

In order to become rich in a fairly short time and benefit from substantial assets, you must be able to choose from a financial point of view for which goal to aim: Cash Flow or equity?

It is not a trivial choice, I will try to help you out by providing practical examples and showing you typical situations.

Cash Flow and Equity are common in Anglo-Saxon countries because people tend to want to increase their CF given the relative ease in which they can obtain credit.

They can invest for example in the purchase of real estate which they will then rent out.

In Latin countries it works in the opposite way. There is a particular tendency to want to first increase equity and only secondarily to focus on cash flow. This is because access to credit and the banks’ valuation methodologies are not easy.

Your financial goals should be this: increase both equity and cash flow
Let’s look at some financial situations which often coincide with different periods of our lives.

I. I only have revenue from my salary
In this case, you will have to invest to increase your revenue and decrease your outputs. The first thing you have to do in this case is to produce additional CF, or simply reduce your expenses to increase equity and cash to make investments.

2. I have an income from my salary and home ownership with a mortgage.
In this case your priority is to strengthen your CF or significantly reduce expenses to increase equity and cash to make subsequent investments.

Paradoxically, what you should do in this case from a financial, not an emotional, point of view is follow my recommendation and sell your house and borrow to produce additional CF and subsequently increase your equity.

3. I have substantial shareholders income but no alternative sources of income.
What you should do in this case is to rent real estate, partially reduce debt and consequently buy new properties to rent to optimize the leverage that would otherwise be unused. Another solution would be to sell the property and use the cash to invest.

4. I have CF and no debt of any kind.
Develop skills to invest in real estate debt and generate equity or buy properties even if you get into debt but be careful that the CF of the rent is higher than the mortgage payment and all possible additional costs.

To Your Financial Freedom

Alfio Bardolla

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