@Ben Leybovich
interesting, I've never heard of "stability" being a function of equity, in finance or economics, or real estate valuations, can you define stability? Now, I do understand stability being translated into variance statistically. Under that umbrella, very few, if any, on BP have a population that will provide a statistically valid variance. Not trying to put you on the spot, if this is a Ben Theory, okay. Whatever. :)
Speaking of cash flow and equity in the same breath isn't an accurate approach.
In any business, the goal is to build capital, also called retained earnings or owner's equity.
There are four basic aspects of financial activities that summarize any business:
"Cash flow" is the revenue received from operations and transactions, this is shown on an "Income Statement". Key components are sales (or revenue), operating expenses and non-operating expenses. Simple formula, gross profit equals sales minus "costs of goods sold" or what it casts you to generate that income. Net income is equals revenues minus costs of goods sold, operating expenses and taxes. This financial performance is measured over a period of time, what monthly, quarterly or annual income may be.
The excess of net income then goes to a Statement of Owner's Equity which also includes additional investments made by the owner.
Also called Statement of Change of Financial Conditions, as Owner's Equity is measuring the change from the last financial position to the current position. This shows the increase of wealth created by a company over time.
There is the Statement of Cash Flow or Use of Funds that show cash coming in and going out of a company, how funds are utilized in paying its obligations and shows the difference cash inflows and cash out flows as Net Cash Flow, this analysis also is measured over a period of time.
The Balance Sheet includes assets, liabilities and owner's equity at a certain point in time, not over time as the other statements. The goal is to reduce liabilities that increase assets and thereby increasing owner's equity. Assets must equal liabilities and owner's equity. If assets are less than liabilities and owner's equity, you are legally bankrupt.
Now, you can see that wealth is a function of owner's equity that includes excess revenues.
So, if your business only generates enough cash flow for the owner's personal expenses, taken out as management or operating expenses, then there is nothing left to go to owner's equity in the business. Such is not a viable business but you earn enough for personal income, which is a "job".
I think what Ben was speaking to was the intrinsic, economic value of knowing income will be stable, reliable and being predictable to a better extent than the same amounts received over time but compared to income that is sporadic and unknown. You can have a better use of funds when income is predictable and this shows up in how funds are used and then are retained moving the money to owner's equity. The only financial advantage of the same amount of funds coming in regularly is your ability to use the money and interest income that may be earned to the next date income is received.
If you're a landlord, you want quality tenants to provide you with predictable cash flows. If you are on the sales side of real estate, you never really know when a sale will close until it closes.
Notice too, that it's net income that moves to owner's equity, that means taxes influence your owner's equity or your ability to obtain wealth. Tax benefits fade away over time due to depreciation, in about 7 to 10 years over a holing period, you need to examine your use of funds and equity over time as that will indicate the time to sell or replace your inventory, with single family residential properties, you'll be better off generally replacing inventory than holding 30 years. It's not really the best goal of having a property paid for as having the ability to pay it off. That's wealth. :)