More than a Game: Lessons from Monopoly that Real Estate Agents and Clients Can Apply in Real Life
Luck plays a huge role in Monopoly, but anyone who has played it (or remembers it from childhood) knows it’s more than that. It’s a strategy game that takes a lot of decision-making—and just like in real life; wrong decisions could get you into trouble in the game. Historically, the game of Monopoly was inspired by Elizabeth Magie Phillips’s self-published game The Landlord’s Game, which she created in 1906 basically as a means of educating people about the single tax theory and the ill effects of concentrating lands in private monopolies. Soon, different versions of the games were released, which include buying, selling and developing land properties in the game. The modern game of Monopoly originated from the one sold by the Parker Brothers on Feb. 7, 1935 (Happy 79th Birthday!). According to the Wikipedia entry about it, Midwestern United States and East Cost residents contributed to the changes in the game’s rules and design. For those of you who need a refresher, Monopoly is composed of three or more players, with one player serving as a banker. At the beginning of the game, players were given their capital-- $1,500—which they can use to either purchase or rent property. Then they had to throw the dice at every turn; move their token a few places on the board depending on the number on the dice. According to WikiHow, if the player lands on a spot with a colored marker on the top such as a railroad or utility, they may buy the property for the amount indicated on the board. That’s if they have the dough for it—if they proceed in buying the property, they get the deed. If they don’t, the property goes to auction. The winner gets the deed. If someone else lands on your property, then they get to pay you rent as determined by your title deed. Then there’s jail, bankruptcy, and mortgage. These things happen, especially, when you run out of money, or have no enough money, or if your timing is just plain unlucky. As your money grows, you can purchase more properties. If you have more than one property in one colored group, then you already have a monopoly and raise the rent for those properties. You could build houses, and after building four houses you can change those into a hotel, where you can charge more. WikiHow advises readers to “build evenly,” meaning if you build a house on one of your land in your own color group, you should build another house on every property in the same color group. You cannot buy a house on any of these properties unless you’re allowed to. Trading properties is also a key component of the game and can occur anytime players want to enter a trading agreement with each other. Your success in getting a good deal depends on your negotiating prowess. Philip Orbanes, author of Monopoly, Money and You: How to Profit from the Game’s Secret of Success, tells U.S. News in an interview: “I think Monopoly is the first and perhaps most significant training ground kids get in learning the importance of the art of negotiation and how to do it. It's the safest way imaginable to learn the impact of financial dealings, because you don't lose real money if you make a mistake.” “ Along the way, you pick up how to be an appealing trading partner—meaning, you don't rub people the wrong way when brokering a deal—and, at the same time, be able to get a little more out of the deal than your opponent does,” he said. Surely, negotiating and trading are key skills in Monopoly and real estate. You have to take care of your clients and be careful in dealing with them—sizing them up. But Monopoly also teaches you the importance of the art of timing and diversification, both of which are components that tie the whole game together. Sham Gad of Yahoo Finance also offers some additional tips:
- Do not max out your finances. Winning Monopoly means being the last player standing—one with money. If you’re an agent, you have to make sure that your client is liquid right now or your client’s going to have problems closing on the property. If you’re a buyer, then it’s going to be too risky for you to put all your money in one property considering that you also have other financial obligations.
- “Don’t put your eggs in one basket.” If you’re an agent, make sure to advice your clients to diversify their portfolio and try to vary things up a bit. Investors should not concentrate their cash in just one type of property or group of properties. “Usually, the winner is someone who spreads out his or her properties throughout the board and has multiple chances at capturing rents,” Gad said.
- Understand the value of cash flow. Cash flow depends on the value your property has and its ability to increase over time. And being smart about growing your cash flow is simply the way to win in Monopoly, according to Gad. Buying valuable properties that generate money and increases in value moving forward (i.e. earns more interest as time goes on) is one crucial factor in wise real estate investing.