There are invaluable lessons to be gleaned from the seemingly childish board game Monopoly, such as buying a property in the right location, having large cash reserves, and diversifying your investments. When taking a deeper look at the game, commercial real estate investors are provided with some valuable, real-world investment approaches.
Location is paramount.
The majority of commercial real estate investors look at investments in prime and secondary markets as those that will reap the highest reward, but this might not always be the case. In the game, Monopoly shows that a smart approach is to purchase those properties that have the highest traffic – case in point, the orange properties, St. James Place, Tennessee Avenue, and New York Avenue. These properties are landed on the most frequently and are cheaper to build houses and hotels on, therefore the investor receives a steady income stream. However, in real life rolling the dice doesn’t always end positively, which is why investors must hedge their bets and mitigate risk by performing proper due diligence prior to any acquisition.
Cash reserves make for off-market opportunities.
When players in Monopoly sell properties to remain solvent, their opponents who are ready to buy with large cash reserves reap the benefits. This situation also proves true in real-life investing. In order to capitalize on off-market opportunities, commercial real estate investors must have access to large cash reserves. Besides providing opportunities for better price negotiation, cash reserves also allows commercial real estate owners to remain afloat during tenant vacancies or market downturns.
Diversification increases total returns.
Although the point of the game is to achieve pricing power by buying and building out as many properties as quickly as possible, smart Monopoly players know that a diverse investment strategy is key – investing in railroads and utilities create passive income while you wait for opponents to land on your properties. The same approach holds true for commercial real estate investors, where proper diversification increases total returns and lowers the overall volatility of a portfolio.
Timing and effective negotiation skills go hand-in-hand.
In Monopoly and real-life investing, timing is everything. That’s why calculating the perfect time to trade a property and effectively negotiating the deal can make for big wins. In the game it’s easy to negotiate a trade when an opportunity arises because there is no real money to lose. However, behind the desk, the amount on the table is significant and can even put your livelihood on the line. That’s why smart investors will apply their Monopoly negotiation tactics in the board room when brokering a deal – they know that each deal takes a certain amount of finesse and the right amount of give-and-take to reach an agreement.
Have a long-term plan.
By setting a long-term goal and effectuating the plan, you set yourself up for success and can more easily navigate potential financial pitfalls and temptations along the way. In the game, every Monopoly player receives $1,500 at the start to invest with it as they wish. If a player has a goal to own all of the utility companies and railroads, they will be less likely to be swayed into buying other properties that fall outside of their plan. Just like in real life, commercial real estate investors should outline a long-term plan and nurture their nest egg through strategic investing practices.
To learn how to reap real-life investing rewards, contact Brent Williams or Allison MacDonald to learn how Meissner Jacquét’s commercial real estate services provide confidence, stability, and relevant solutions to commercial real estate investors.
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QuickLiquidity, 3 Things Investors Can Learn from Monopoly
U.S. News & Money Report, What Monopoly Can Teach You about Smart Investing