The game of Monopoly was first patented in 1935, and since then has been translated into over 37 languages and distributed in over 100 countries across the globe. For our team at Loansuite, we all loved playing Monopoly as kids, and some of us still enjoy it today. It gives us all an opportunity to step into the shoes of a property tycoon with minimal consequences if we get it wrong, other than perhaps losing to your family and friends that you’re playing the game with.
This week, we’re sharing our top tips that successful property investors can learn from the classic board game, Monopoly. If you have any to add, drop them in the comments, we’d love to hear your take on the game.
- It’s important to have some liquidity
Monopoly newbies, tend to buy every property they land on until they’re in a position where they have no cash available. This means that as soon as they land on another player’s property, or have to pay a fine, they’re now in a position that they have to sell one of their properties, borrow money from other players, or forfeit the game.
It’s important to ensure that you always retain some cash in your balance sheet to cover these expenses. After all, you may go a number of rounds before another player lands on your property and has to pay you. Keeping excess cash in your offset account, or linked bank account can be a great idea to cover the ongoing and one-off costs that can arise with property ownership.
- Cash flow is king
It’s important to consider what the expected rental return is going to be based on the cost of buying the property, and the amount that other players will have to pay you as the landlord. It’s also important to consider how likely it is that they will land on your properties, which we’d link to the expected vacancy rate of your property in the real world.
You can calculate the expected rental yield based on the amount other players have to pay you divided by the cost of the property itself. You can then take this a step further by multiplying it by the likelihood of them landing on your property, which will give you an expected yield figure to compare the different properties on the board.
- Diversification is critical to your success
If you only own one property or a small number of properties in Monopoly, you could be waiting a long time for another player to land there and have to pay you. This can be particularly the case if players solely focus on Boardwalk and Park Place, which are expensive properties to buy, as this could leave the player without enough cash or funds available to buy other properties. You may instead want to focus on accumulating a number of mid-range properties such as the railroads, which can be great income sources, particularly if you own all four.
In the real world, diversifying your property investment strategy can allow you to minimise land tax exposure, allow you to enter the different markets at different stages of the market cycles, diversify your rental income streams, and simply diversify your risk.
- The art of negotiation is a vital skill
In Monopoly, you also have the option to buy and sell assets from other players. This allows you to really hone your negotiation skills by assessing how much the other player would be willing to pay for your asset, and how to ensure that you don’t convey how desperate you are to acquire what they’re selling. This can be the deciding factor of who will win in a game of Monopoly.
- You can’t escape the tax office
In life, as in Monopoly, you will likely have to pay some taxes, and this tends to increase based on your level of income and/or the number of properties that you own. It is only reasonable that the more income you earn, the more tax you should have to pay, and this is true in both life and Monopoly. This highlights the importance of calculating what your tax exposure could be and factoring this into the amount of cash that you should always keep on hand.
Again, you may wish to keep this cash in your offset account, or a linked bank account. The important factor is to ensure that it is liquid and you can access it when you need to in order to cover the tax bills.
- Luck does have a role to play
In Monopoly, we roll the dice and land on the place on the board as a result. This is no different from life with events that are beyond our control that could have an impact on our finances. There may be a health issue, jobs lost, global health pandemics that put pressure on our business, or something completely different. The fact is that these events can catch us by surprise, and can’t necessarily be planned for. All we can control is how we react and move forward from these events.
How can you plan and turn your luck around..?
There are plenty of personal finance lessons and insights to be gleaned from the board game Monopoly. Let us know if you have one you’d like to add to our list.
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