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Pass go and collect $200! Real life property investment tips we can learn from Monopoly

July 19, 2019

Monopoly might not be the best real estate board game out there, but it is the one that everyone knows. Most people have at least some memory of playing Monopoly. You might remember the thrill of passing go and collecting $200, how tense it gets when you have to move past a row of hotels, or maybe all you remember are the arguments it caused around the dinner table.

Monopoly is not a perfect game. It’s old, flawed and relies heavily on luck and no amount of special edition pop culture tie-ins are going to change that. At the same time, it is enduring in its popularity and maybe part of its appeal comes from some of the real world lessons it can teach about investing in real estate.

Do your research and have a game plan

When it comes down to it, Monopoly is really just a game of numbers and statistics. Players have no control over where they move, which means almost everything is decided by the roll of the dice.
So, by doing some research and looking at the statistics, you can make informed decisions about how likely people are to land on certain properties during a game, and how profitable each group of properties are – then adapt your strategy accordingly.

It turns out that jail is the single most visited square in the entire game. Unfortunately the jail hasn’t been privatised so you can’t buy it, but you can buy the most frequently landed on properties, which are:

  1. Trafalgar Square (red)
  2. Vine Street (orange)
  3. Marlborough Street (orange)
  4. Bow Street (orange)
  5. Pall Mall (purple)

In the real world, it’s even more important to understand the numbers involved when buying an investment property. You need to do your research. When analysing a property, look at comparable sales in the area, and comparable rents. Try to get a good understanding of how different features will impact on your ability to find a tenant and how much rent you will be able to charge.

You should also look at expenses like body corporate fees, insurance and maintenance costs and work out how they will impact on your bottom line. Work out how much money you can afford to pay in mortgage repayments each month and how that will impact the speed at which you build up equity in the property.

It can sound daunting, but there are people who can help. A good agent will have done a lot of this research already, and they should be more than happy to talk you through everything and help you find a property that will meet your investment needs.

Start slow and don’t over commit

A good early strategy in Monopoly is to try and collect a full set of the cheaper properties on the first two sides of the board (brown, blue, red or orange). Then you build a few houses on each and wait for them to start generating the funds you will need to buy some of the more expensive properties on the board.

If you start out buying everything you land on, you can easily wind up without enough cash to pay your bills, and you’ll end up have to sell off your assets cheaply to cover your costs. In real life, this can be even more disastrous. Not having enough money to pay your bills and service your mortgages is the quickest way to kill your investment strategy.

So, when you are first starting out in real estate investment, it’s a good idea to take it slow. You don’t need to buy the most expensive properties in the most exclusive neighbourhoods. Just look for quality properties in good neighbourhoods that will offer a reasonable return on investment.

Buying less expensive properties means your mortgage repayments will be lower, and they can still deliver an excellent return on investment if you buy wisely. Once you build up your equity in the property, you’ll be able to leverage off that to buy more expensive properties in the future.

Don’t over renovate your investment property

Renovating is a great way to add value to your investment property - but only if you make the right renovations.

In Monopoly it’s not usually a good idea to start building hotels as soon as you collect a full colour set. Depending on your property and your luck, you might never break even on your investment.

You need to work out the ideal amount of money to put into a property. With the orange properties for example – the optimum level of investment is to build 3 houses on each. Any more than that and your return on investment decreases. At the same time, if you stay on 2 houses, you are underutilising their potential.

The same is true with your investment property. It can be an excellent strategy to invest extra funds in your properties to improve their value and maximise your returns. But you need to be smart about it. The last thing you want to do is spend $20,000 renovating your kitchen, when it will only add $10,000 to the property’s total value. However, there are plenty of improvements you can make to your property at little cost that provide excellent returns. Something as simple as a fresh coat of paint can improve your property’s value.

If you’d like some advice on renovations you can make to add value to your property, contact your local Independent office.

Location is very important

What is the best colour to own in Monopoly? A lot of people think the two dark blue properties (Mayfair and Park Lane) are the best. After all, they let you charge the highest amount of rent if someone lands on them.

That’s not actually the case though. The best properties to own are orange (Vine, Marlborough and Bow streets). Why? Because they are in the best location. More people land on orange than any other coloured properties in the game. You get the normal traffic as people move around the board, but you also get a lot of traffic as people leave jail (the most visited space on the board). There is actually a 35% chance that a player will land on an orange property after they leave jail.

Location is even more important in the real world. We’ve talked before about how similar houses can vary in value, even within the same neighbourhood. That’s why it’s so important to do your research and examine the location your investment property is in. Sometimes the investment properties that deliver the best returns are not necessarily those in the most expensive areas. To maximise your return on investment you want a property that people are going to want to live in. The location and lifestyle benefits offered by your property is going to play a big part in attracting tenants.

Don’t leave your property investment strategy to chance. If you follow this advice, seek the guidance of real estate experts, and develop a solid game plan, you can create a winning investment portfolio.