Investors can learn a lot from Monopoly

Author: ME

Published at: 8/26/2016 11:04:02 AM

 

Investors Can Learn A Lot From Monopoly

 

Successful property investing has nothing to with Scottie dogs, top hats or free parking. But the logic behind Monopoly – and what it takes to be a winner – rings true for real life landlords.

 

Take a look at five pointers investors can pick up from Monopoly.

 

1 Hoarding cash is not a winning strategy

 

Every player starts Monopoly with a wad of cash but those players who hoard it are often the first to be knocked out.

 

You can only win in Monopoly if you have a decent property portfolio, and it’s the same in real life. Cash is safe, secure and very liquid. But the returns are low and fully taxable and you won’t get the benefit of capital growth. Park your money cash – but only until the ideal investment property comes along.

 

2 It makes sense to diversify

 

One of the tricks to success in Monopoly is owning a same-colour group of properties plus a utility or two. This way players optimise their cash flow and rental yields and boost the odds of winning.

 

The same rings true for real life landlords. It makes sense to diversify your property portfolio, and this can be done geographically – buying across different locations and even states, or with a mix of property types like houses and apartments.

 

3 Workhorse suburbs can deliver compelling yields

 

Ever noticed how Monopoly novices almost always want to buy Park Lane or Mayfair just because they are the glamour spots on the board? Crunch the numbers though and you’re likely to find the daggy ‘orange’ locations – Bow Street, Vine Street and Marlborough Street deliver the top yields. Why? They are situated close to jail, a spot where all players will find themselves at some point, and that means people land on these streets regularly.

 

The lesson for real life? Buy your owner occupied home in a prestige location by all means but invest based on numbers. Look for locations with high tenant demand, strong yields and solid prospects for long term capital gains. They’re not always the glamour suburbs but you’re not investing for looks.

 

4 Put equity to work

 

Let’s hear it from the horse’s mouth. The UK’s 2015 Monopoly champion - 24-year old Natalie Fitzsimons described her winning strategy saying as soon as she owned all streets of the same colour set, she mortgaged her other properties to put houses on them [1]. Why? It makes the properties more valuable and that means higher rents.

 

Similarly, the equity built up in your current investment properties can be harnessed to further expand your portfolio. In today’s low rate environment it can be a smart way to grow wealth.

 

5 It feels good to win

 

A Monopoly victory always feels good, and it can provide bragging rights for weeks to follow.

 

But for the true spoils of success, nothing spells ‘winner’ like financial security. Residential property is a favourite among Australian investors for good reasons – proven long term capital growth, ongoing rental income and valuable tax benefits. Add in the fact that you have complete control over your investment, and your financial security doesn’t have to rely on a roll of the dice. Now that’s winning!



[1] UK Telegraph, How to always win at Monopoly,  21 July 2015 http://www.telegraph.co.uk/men/the-filter/how-to-always-win-at-monopoly-seven-essential-tips/

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