Le Cash Flow vous appauvrit (et personne n'ose vous le dire)

The podcast emphasizes that positive cash flow from an apartment investment is crucial, as it directly impacts your borrowing capacity from banks. For instance, a €300 cash flow increase effectively raises your monthly income by the same amount in the eyes of a bank, allowing you to bypass the 33% debt-to-income ratio limit and acquire more properties. The hosts, Fouad Berlin and Hugo, reflect on a previous podcast where they advised listeners to "forget cash flow," which was often misinterpreted as promoting negative cash flow investments. They aim to clarify this stance, stating that while cash flow is important, it should not be the primary objective. They introduce the concept of "Patrimoine Exponentiel," a program designed to help individuals add €1 million to their wealth within 15 months, challenging the common belief that such a goal is unrealistic. They also offer a free finance strategy workshop. Fouad critically analyzes the real estate market, noting a "tsunami of information" that has pushed cash flow-based strategies. He argues that this approach, widely sold to millions, failed when interest rates rapidly increased from 0% to 4%. These strategies, he explains, are not sustainable for long-term real estate investments, which are inherently capital-intensive. French investors, benefiting from fixed-rate mortgages, were somewhat protected, unlike those in markets with variable rates. The only ones who successfully adapted to these market changes, Fouad observes, were not the investors but the "formateurs" (trainers/sellers of strategies). They shifted from selling cash flow strategies to promoting "market flipping," which he describes as even more problematic due to its high skill requirements, lack of capital among many participants, and prevalence of amateurism. He identifies two major shocks to the market: the interest rate hike and the HCSF (High Council for Financial Stability) rationing credit, effectively limiting ambitious investors. The trainers, he contends, quickly pivoted to selling the dream of making €60,000 quickly through flipping, often without requiring bank involvement, through mechanisms like "vending to terms of the credit vendor." This, he concludes, is an illusion, not realism. Fouad highlights that true adaptation, as Darwin suggested, is about survival. In the real estate context, from 2016-2022, trainers sold the idea of €50 monthly cash flow, but now they are selling €60,000 quickly for a €15,000 fee. Investors, unfortunately, often pay these trainers who have no obligation to deliver results. He likens the pursuit of unrealistic financial goals to a mirage, emphasizing the need for objectives to be grounded in reality, aligning means with the scale of the goal. He warns against being perpetually trapped in the illusion perpetuated by those aiming for one-shot gains. He cites examples of individuals in audits who express desires to "invest massively in two years" and "stop working and replace my salary," which he deems "extremely difficult" and often misunderstood. Fouad explains that banks are wary of individuals replacing their salaries with real estate cash flow, often exercising a veto. He shares an anecdote of a high-earning individual with significant cash flow from investments who was denied further loans because her real estate income was deemed "too important" compared to her employment income. This illustrates that banks prioritize stability from traditional employment. The podcast then outlines the structure of the remaining discussion: clarifying their original "forget cash flow" statement, explaining why cash flow shouldn't be the number one objective, detailing common cash flow errors, and addressing how to approach negative cash flow. They argue that negative cash flow doesn't necessarily mean a loss or constant personal injections, as there are techniques to amortize and spread it out. However, they firmly state that cash flow is not the decisive criterion for real estate investment, contrary to popular internet advice promoting aggressive co-location or short-term rentals like "love rooms." Fouad clarifies that "forget cash flow" was never meant to imply investing in negative cash flow operations. He himself has positive cash flow operations, but emphasizes that patience and focusing on quality operations, increasing patrimony size, and bank amortization are more critical. He also highlights "latent capital gains" from negative cash flow operations as highly valuable. A key distinction is made between "rent" (exploitation) and "rentability" (exploitation plus resale). An investment can have high positive cash flow (e.g., a "love room" in a declining city) but still result in negative overall profitability due to capital depreciation. Conversely, an investment with low or negative cash flow can be highly profitable after resale. The hosts criticize the obsession with cash flow, calling it a "psychological bias" that blinds investors to more powerful wealth-building mechanisms like capital appreciation and loan amortization. They explain that a 1% annual capital appreciation is far more impactful than small monthly cash flow gains. Loan amortization, though not immediately visible in a bank account, silently builds wealth. This preference for immediate, visible cash flow is linked to the "preference for liquidity" and "preference for the present," a concept rooted in studies like the Marshmallow Test. Most people struggle to grasp the long-term, less tangible benefits of loan amortization, which can amount to significant wealth accumulation over time (e.g., 4% of real estate value annually). The podcast asserts that bankers do not prioritize an investor's cash flow. They are more concerned with the borrower's ability to repay even without a tenant, assessing the risk of the operation. Using the term "cash flow" in a loan application to suggest living off real estate income is seen as a "social class error" by banks. True wealth, they argue, is built through the accumulation and capitalization of assets, not through small, immediate cash flow. They advocate for a "capitalistic vision" of real estate, where the focus is on accumulating capital and using bank leverage. Cash flow is merely "chantilly" (whipped cream) on a "chocolate chaud" (hot chocolate) – a pleasant addition, but not the core substance of the investment. The hosts then elaborate on the errors induced by an obsession with cash flow. It leads to using "bad investment vehicles," exposing investors to HCSF restrictions, and pushing them towards aggressive exploitation methods that lead to mental and financial strain. They mention their "rich equation" in Fouad's book, which highlights how many investors make the "right combination of all the wrong choices." They discuss the distinction between the wealthy and the less affluent, noting that investment vehicles and the ability to defer income are key differentiators. Investing through a company, where the money isn't immediately yours, acts as a "brake" against the temptation to consume capital. They cite Karl Lagerfeld's statement that knowing one's bank balance is a "question of the poor," implying that truly wealthy individuals focus on asset accumulation, not liquid cash. The "preference for the very liquid" (savings accounts, short-term insurance) and the obsession with cash flow, they argue, mechanically and legally block investors from true wealth accumulation. They reiterate that capital appreciation (even a modest 10% on €5 million) and capital amortization are far more powerful than cash flow. The podcast emphasizes that the HCSF's legally binding recommendations since January 1, 2022, mean banks can no longer use "differential calculation" (where rental income offsets loan payments) to favor investors. Instead, they must use a classic debt-to-income calculation, severely limiting borrowing capacity for those solely focused on cash flow. This means banks will not risk their licenses for unprofitable loans. They provide an example of "Franck," who was limited to €400,000 in borrowing with a cash flow strategy but achieved €2.2 million (top 1% of French wealth) in 18 months by changing his strategy, despite having a modest salary. This demonstrates the limitations of a cash flow-centric approach. An obsession with cash flow also pushes investors towards "sinister" or declining cities (like Roubaix, Saint-Etienne, Forbach) where high yields are advertised, but structural problems (e.g., high unemployment, social issues, precarious tenants) are rampant. These areas, while offering high cash flow, come with significant risks and management challenges, contradicting a "bliss patrimoine" strategy focused on minimizing problems. Furthermore, cash flow obsession leads to cost optimization, where investors try to reduce every expense, including professional property management and GLI (Guaranteed Rental Income) insurance. This is risky, especially in areas where GLI is essential, potentially leading to investing in precarious situations without adequate protection. They also warn against compromising on borrower insurance for small savings, as it can negatively impact future loan applications. The hosts describe certain "modes of exploitation" (like aggressive co-location or short-term rentals that bend regulations) as "puttana" (prostitute-like) due to their fragility and unsustainability. These strategies often require disproportionate effort for smaller returns and are vulnerable to regulatory changes. For example, converting a single-family home into multiple co-living units might generate high cash flow initially, but if local regulations change (e.g., rent caps applied to all housing), the investment could quickly become cash flow negative with no easy exit, as the property might no longer appeal to traditional family buyers. This fragility, they argue, is the antithesis of a robust investment strategy. In the final part, the podcast discusses how to integrate cash flow into a capital strategy. They assert that negative cash flow is not an insurmountable problem with the right strategy, financing, and overall vision. They emphasize building a strong borrower profile. Even with negative cash flow on multiple properties, the actual out-of-pocket expense isn't perpetual; it can be mitigated over time through rent indexation, arbitration, and potentially renegotiating interest rates. They stress the importance of a "global vision" and a "macroscope" approach to wealth building, focusing on the overall patrimony rather than individual components. Psychology is deemed the "vertebral column of money," highlighting the need for a strategic mindset, patience, and the ability to suspend judgment. Investing in human capital (education and mentorship from the best) is crucial. Fouad shares two personal examples to illustrate his points. First, he bought a hotel property for €270,000 that initially had a low rent of €1,660 per month, resulting in negative cash flow. Through strategic legal action and rent re-evaluation (déplafondment), the rent increased to €4,166 per month, yielding a positive cash flow of over €1,500. He anticipates further rent increases and significant capital appreciation, demonstrating how an initially negative cash flow operation can become highly profitable through strategic intervention and patience. This operation, found on a public marketplace (Le Bon Coin) and initially ignored by others, highlights the value of human capital and unique insights. Second, he discusses an upcoming operation in Meudon La Forêt, a high-value area, involving the division of a 400m² office plateau into nine apartments. Despite an estimated negative cash flow initially, he will proceed because of the substantial latent capital gain (€600,000) and the quality of the asset. This further reinforces that profitability is not solely defined by immediate cash flow. The podcast concludes by reiterating that cash flow is not the most important factor in real estate investment. It is a minor component compared to capital appreciation and loan amortization. They urge listeners to shift their perspective, embrace a long-term capitalistic vision, and avoid the pitfalls of short-term cash flow obsession, which can lead to fragile strategies and missed opportunities for significant wealth accumulation.