Asset engines are engines that produce money for you while you sleep. It is the basis of attaining financial freedom. In this article, we cover what they are and how they can be created.
The inventor and the engine
Imagine you’re inventing a new type of engine. In the beginning, what you make will produce no power. Everyone will look, point and laugh as you attempt to create something new. At times, the effort will make you wonder if it’s all worth it.
However, as you persist, you come closer and closer to an actual working prototype. Then one day, you piece together an engine that finally works. With a little bit of fuel, it starts to run by itself. With time, your knowledge builds and the engine gets more advanced and you end up with a product that produces enormous power without you having to do anything.
This is how cars, planes, rockets and submarines were invented. People laughed, but through persistence, these inventors changed the world. In the same manner, you can be the inventor that changes your own world.
Financial freedom and the asset engine
Financial freedom is the quality of never having to work for money again. More precisely, to be financially free means that you are getting enough money in your bank account to cover all your liability and expenses, but this money is coming without you having to work for it.
Whatever it is you have that is making you money while you’re not working, that is called an asset engine. Again, an asset engine is anything that makes you money without you having to put any work into it. We’ll go through a few examples shortly.
Creating your asset engine
When you decide you never want to work for anyone again, you embark on a journey to become an inventor. However, unlike the story at the beginning of this article, you aren’t inventing an engine, you’re inventing an asset engine.
Just like the inventor in the story above, you will pour your heart and soul into inventing this engine with no results. People will laugh at you. You will fail. But as you persist in inventing, you will one day land on an asset engine that works. As you continue to refine it, it starts to generate more money with less work.
Then you can take a step back and hold your head up high. You’ve just invented an asset engine. Just remember all this as you create your engine.
Type of asset engines
There are three types of asset engines. Investments, rental properties, and businesses.
When you put money into dividend stocks, and they end up paying you dividends every year, congratulations, you have a tiny asset engine. Because it takes very little work to buy a dividend stock, it produces very little money.
For example, for about $100, you can buy CIBC stock. CIBC generally pays $4 in dividends every year. So, for $100, you just bought an engine that makes you $4 a year.
If you want to make $40,000 a year, you’ll need to buy 10,000 CIBC stocks, which would roughly cost you $1,000,000. You’ll have to work very hard to get enough asset engines to become financially free.
Another option is to buy a house or condominium and rent them out to tenants. With one or two properties, there’s going to be a lot of up front work (acquiring a mortgage, finding tenants and managing your properties). When everything is set up, your returns may be low. Perhaps your monthly costs (mortgage, utilities, taxes) are $1500 and you can only rent it out for $1600. So, every month, you’d be making $100. But, congratulations, nonetheless! You just invented another asset engine.
As you purchase more and more homes, and rent them out to more and more tenants, you will start multiplying your income. From $100 from 1 property, you can work your way up until you’re making $5000 from 50 properties. To reduce the work you have to do, you can then hire property managers to manage the tenants for you. Then, you’ll have multiple asset engines, properties that are making you a lot of money, without you having to put too much work in day to day.
To get 50 properties is a real mission. But there’s a way to do that called the BRRRR method (Buy, Rehab, Rent, Refinance, Repeat). This technique is genius and many people use it to attain financial freedom.
The final option is going into business. Businesses that are cash flow positive and that run by themselves are the greatest asset engines ever. In fact, investments and rental properties derive their value from businesses. If it weren’t for businesses, there’d be nothing to invest in. If it weren’t for businesses, tenants could not earn the money to pay rent.
Therefore, if you decide to go into business, know that you are truly doing something to add to your country and your own financial freedom.
When going into business, there are three options: opening a franchise, buying an existing business or creating one.
Opening a Franchise
Businesses have a high failure rate. However, franchises have a higher success rate. My small business consultant said that franchises have between an 80 – 90% success rate. That’s insane! Yes, franchises have a high up front cost, but you are highly likely to make a profit if you hold on long enough.
If you do open a franchise, you can one day hire a manager to run your franchise for you and you’ll have created an asset engine. Here are some considerations when opening up a franchise. You may only need one franchise to attain financial freedom. However, if you want a high-flying lifestyle, you’ll need to open more franchises.
Buying a business
Another way to financial freedom (but the one that requires the most guts) is to buy a business. This requires:
- Finding an industry to enter
- Cold calling business owners in that industry to see if they are willing to sell their business
- Investigating their financials to see if they are candidates for purchase
- Convincing banks to give you a commercial loan to buy the business
- Drawing up a purchase agreement that doesn’t shoot you in the foot
- Managing the business
- Hiring someone to manage the business for you
The reason this takes the most guts is because of the level of confidence needed to work with your banking partner, the business team you are buying the business from and the new employees you’ll be taking care of. If you’ve never run a business before, you can imagine how high a bar you have to reach to suddenly become the owner of a cash flow positive business.
To take this to the next level, you can follow Dan Peña’s method. His technique could net you millions or blow you into bankruptcy. However, the knowledge and education you will gain from following this method is invaluable.
Creating your own business
This last method could truly be the way of the inventor. You are doing almost everything from scratch. It is the hardest path to follow. It has the highest failure rate. If you succeed, if you can create a business that makes money for you without you having to work in it, you will be a free man. If you fail, you could fall into bankruptcy.
So, why take the risk of becoming an entrepreneur? Because:
- You can bring to reality a vision that has never been seen before
- Your journey will have all the drama of a movie (in fact, your story could be the basis of documentaries and movies, and your name could be written in the history books)
- Finally, the heights you can reach are boundless
It is only entrepreneurs that created cars for everyday use, personal computers, rockets that could take us to Mars and electric vehicles. Almost every renowned innovation came from entrepreneurs and the ventures they started. You too could usher in a new era because of your new business.
Starting your own business is a whole article unto itself. Fortunately, that article has already been written and it’s called the 2020 Ultimate Guide to Starting Your Own Business.