The Perpetual Money Machine begins to wind itself up!


I’m about to find out if I can make money on-line … read the latest installment (just posted) here!


Your Perpetual Money Machine begins to wind itself up (in the case of selecting RE as your ‘income capacitor’) simply when the property portfolio that we discussed on Wednesday becomes cashflow positive …

… this is a critical point in time, because now we can exponentially accelerate the size of our pool of capacitors!

Now, we can take our 15%++ (continually growing as our income stream continues to grow) and ADD the excess cash spun off by our profitable property portfolio (assuming that we selected real-estate, as our ‘income capacitor’ i.e. storage device for money) …

…. this ALL goes into: new properties!

Now, Scott is building a whole bank of financial ‘income capacitors’ …but, for what purpose?

Aah, until the point in time that the income from these ‘capacitors’ is enough to replace Scott’s income from his inventions and movie royalties!

If you have been following the process, this can happen surprisingly quickly (5 to 10 years) IF the income stream that Scott is seeding with is large enough to purchase large ($1 million+ each) commercial properties.

If residential (incl. larger multi-family) you can expect it to take a little longer, as these tend to start more cashflow-negative, or grow too slowly.

At this point in time – assuming that the income-replacement is sufficient to satisfy Scott ‘forever’ (if not, keep working/building a few more years) – we have our Perpetual Money Machine!

You see, the real-estate will continue to grow, even if you no longer continue to ‘seed it’ with more income … in fact, it will grow (on average) at least according to inflation, producing an income that also at least grows with inflation (even allowing for keeping 25% aside as a buffer against repairs/maintenance/vacancies/etc.).

Scott can spend that entire income with impunity, knowing that his capital is never at risk … just like cash in the bank, only better because the capital also grows (at least) with inflation …. provided that your outlook is long enough.

On the other hand, if Scott chose to put his money into Berkshire Hathaway stocks, instead of the real-estate portfolio that we discussed here, which have grown at 21% compound for the past 20+ years (although, not even Warren Buffett suggests that that rate of growth will continue), then Scott can simply sell down enough stock each year to fund the next year’s income.

Different tool, hopefully a similar result …

In either case, when Scott’s royalty income stops, his Perpetual Money Machine seamlessly and automatically takes over.

Nice for some 😉

PS The mechanical/electronic Perpetual Motion Machine is impossible in physics (although, quantum mechanics may provide a solution) … the one depicted in the image above was built in 1996 and resides in a vault in a Norwegian gallery: it once ran as long as 14-days in a row without stopping … hardly ‘perpetual’ but pretty, damn good!

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12 thoughts on “The Perpetual Money Machine begins to wind itself up!

  1. Nice, but not all perpetual motion machines are that seamless. If you want to invest in cash flow positive properties here in Australia, either you are buying into regional areas that are subject to seasonal trends or you become a slum lord. Furthermore, the boom on “cash flow positive” properties and the high interest rates here in Australia has meant that the cash flow positive opportunities have all but dried up.

    Similarly, a Berkshire Hathaway portfolio can easily loose large chunks of value during declining markets (sub prime for example).

    Is there a such a thing as perpetual motion machine (short of having more than 7 million in the bank earning interest) that means that I don’t need to deal with difficult tenants or worry about every jitter in the market?

  2. @ Caprica – Any reasonable property can become cashflow positive if you allow TIME for the rents to build up; you just need to keep earning income until that happens. Of course, if it’s cashflow positive from Day 1, even better (more likely to occur in commercial than residential in many markets).

    And, don’t say “oh, Australia is different” as I am well invested there, too … building up a real-estate portfolio there in EXACTLY the same way that I recommend here 🙂

  3. Think I read somewhere that if you don’t want to deal with difficult tenants, you should hire a property manager, otherwise you ARE the property manager and not simply the owner, and that actually is a negative draw on your income (unless you are a super-efficient property manager, trained and experienced well in that which you are doing and you make more money as a manager than you do as an owner. Back to whether you are getting paid to manage a property or if you are going to be an owner.

  4. @ Caprica nothing in life is without risk- but you can minimize risks by diversifying- use multiple types of wealth capacitors some properties, some stocks, even some bonds. You can further diversify with a mixture of commercial and residential properties, properties in different locations, etc.

    Similarly you can diversify stocks through buying small cap, large cap, mid cap, and foreign stocks.

    If you diversify you can be fairly sure that one bad event doesn’t ruin everything. Of course if the sun goes supernova all bets are off but barring that you should do fine.

    Di makes good point- rental properties must be managed and that should be figured as part of the cost of the investment. Even if you plan on doing it yourself your time is still valuable.


  5. @ Di – And, Dave Lindahl points to the risk of ‘burnout’ if you DO become your own Property Manager.

    @ Rick – Isn’t the Perpetual Money Machine (i.e. make your ACTIVE income one way, then create PASSIVE income another way) enough diversification for you?

    By diversifying even more, don’t you run the risk of ‘spreading yourself too thin’ (who can be expert in all of the areas that you mention)? Therefore, don’t you also run the risk of averaging your returns DOWN?

  6. thanks for the response AJC.

    regarding property investment, one of the strategies I have been thinking about is one I have seen done a few times, which is around using a making money 201 style strategy to achieve a 301 outcome.

    In this approach you basically buy up more properties than you need for the 301 stage and when your equity level in all your properties builds up to a certain level you sell down and then are left with enough properties to generate enough rent to keep you financially free. For example, you spend your 7 years acumulating 10 properties, then in year 7, you sell out 5 properties and use the profits to pay out the other 5, leaving you in a cash flow positive position.

    Do you have any thoughts on this? Is there a way of doing this without being up to your eyeballs in debt during the 201 stage and still get to your 7 million in 7 years?

  7. @ Caprica – I think ‘being up to your eyeballs’ in RE debt is nothing to be overly concerned about IF they are paying their way (with a suitable buffer against vacancies; repairs & maintenance etc.) and they are not over-geared … it’s probably unavoidable if you want a 7m7y outcome.

    As to buying 10 then selling 5 to leave 5 debt-free, that’s possible, although I wonder if you can 1031 Exchange all 10 properties into one or two bigger one/s that you can own outright, possibly (legally) avoiding Capital Gains Tax?

    I had a friend who bought a property every year using his business profits, then in Year 5 sold the oldest one to buy a new one and take some cash back out … I said, why don’t you simply refinance the older one to avoid the CGT? Needless to say, he started doing exactly that …

  8. Sound just like what Robert Kyosaki says; pick up a couple of rental houses and eventually trade up to a Hotel and step out of the rat-race, just like the good strategy to winning on the board game Monopoly! 😉

  9. @ Scott – The 1031 Exchange certainly makes trading up to the ‘hotel’ viable in the US, but in other countries you may be better of keeping your plethora of houses rather than incurring the CGT upon selling (to trade up).

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