An asset is an investment that earns money for you. It generates cash flow. A dividend paying stock, bond, or rental property is an asset. Your house, personal car, and furniture is not an asset. Wait a minute. My accountant lists my house, car, and furniture under the assets column so they are assets. True, but when you have your investor hat on, you need to think of assets differently. You should only consider something an asset if it generates cash flow for you. Otherwise, you risk missing your financial freedom targets.
What will happen if you stop earning a salary? You will go bankrupt quite rapidly. This is because there is no other income stream. As long as you do not have another income stream, you have to continue earning a salary regardless of whether you love or hate your job. You can only gain financial freedom if your assets are producing enough cash flow to pay for your monthly expenses. Equity locked in your house is not giving you financial freedom. You can sell the house and cash out your equity but you will deplete that equity rapidly without cash flow.
There are many assets for you to choose from so don’t be stuck with an asset you hate. I hate residential property as an asset. Dealing with tenants, property management companies, repairs, and showings is not something I enjoy doing. Because I hate it, I cannot be good at it. However, I love REITs and I am invested in many different REITs. I learned how to evaluate REITs, I enjoy reading their reports, evaluating their assets, and formulating strategy to buy and sell REITs. A REIT (Real Estate Investment Trust) buy, build, and lease commercial properties and distribute the rental income to its investors as dividends. REITs allow me own real estate assets without the headache of managing them.
There are many assets for you to choose from such as different types of properties, franchises, equity investments, interest investments, royalties, profit-sharing, etc. Do your research and find something you really like. If you can be passionate about an asset type, you will happily invest time and effort to learn about such assets. This would help you acquire assets that will help you achieve financial independence.
If you decide to invest in an asset that you don’t love, you risk losing money. I purchased a condo and put it up for rent. I did not enjoy doing the research to find the right property for rental so I was not able to do the full due diligence that I should have done. I did not do my homework when renting the property and ended up having a difficult tenant. My tenant caused so many problems that the condo board and the neighbors were constantly complaining. One day the tenant simply disappeared. It took me a long time do the necessary to re-possess my apartment because instead of dealing with the problem myself, I was trying to find someone who would do the work for a fee. By the time, I did the necessary, she owed me 6 months rent and the apartment was in a miserable state. I had to spent $12,000 to clean apartment and repair the damage. I was determined not to go through that ordeal again so I put the condo up for sale. Once again, I did not do my due diligence and ended up paying 8 months mortgage waiting for an incompetent real estate agent to find a buyer. The situation only improved after I did my due diligence and engaged a competent real-estate agent. I know my total loss was over $25,000 but I keep stalling the calculation for the fear of finding out how much money I lost on the investment. At the same time, I am happy to do lengthy calculations and analyses on REITs. The moral of my story is that if you don’t love an asset, it will be very difficult for you to do what is necessary to make your asset a profitable asset.
Only collect assets you love.
