Monopoly to Market:
Commercial Real Estate Takeaways
Commercial Real Estate Takeaways
Who knew that a board game could teach us so much about commercial real estate investing? Monopoly, the classic board game that has been entertaining families and testing friendships for generations, is not only a fun way to pass the time, but it also offers valuable lessons on the world of commercial real estate investing. From the importance of strategic location to the value of diversifying one's portfolio, Monopoly is a great way to learn the ins and outs of commercial real estate investing without risking any real money.
Location, Location, Location
It’s the first rule of real estate and one of the most important lessons that Monopoly teaches us, the importance of location. In the game, Park Place and Boardwalk tend to be sought-after because they can claim the highest rents. Wiser players look at the board and see that the spaces between the two corners "Jail" and "Go to Jail" get the most traffic and therefore realize that owning and developing those properties can be more profitable. Similarly, in the real world, properties in high-traffic areas such as city centers or popular tourist destinations (especially if they’re near Free Parking) tend to have a higher demand for commercial space, leading to more rental income and better return on investment.
Diversify Your Portfolio
Another lesson that Monopoly teaches us is the value of diversifying one's portfolio. In the game, players can increase their chances of success by building a balanced portfolio of properties, including low-cost and high-cost properties, as well as a mix of residential and commercial properties. This helps spread out the risk and increase the likelihood of landing on a property that generates income. In the real world, diversifying your portfolio is also a smart strategy, as it can help mitigate risk and increase the chances of success.
Timing is Everything
Monopoly teaches us the importance of timing when it comes to buying, developing, and selling properties. In the game, players can increase their profits by buying properties at a low price, developing them, and then selling them at a higher price. Similarly, in the real world, investors can make a profit by buying properties at a low price, developing them, and then selling them at a higher price, but it's important to consider the cost of development, the location, and the market conditions.
Leverage Your Investments
Finally, Monopoly shows us the potential of leverage in commercial real estate investing. In the game, players can take out mortgages on properties to free up cash for additional investments. In the real world, investors can also use leverage by borrowing money to purchase properties, with the expectation that the income generated from the properties will be sufficient to cover the costs of the loan and generate a profit.
Monopoly is a fun and educational tool that can give a bit of insight into the world of commercial real estate investing. It teaches us the importance of location, diversifying our portfolio, timing, and leverage. However, it's important to remember that Monopoly is a simplified version of real-world commercial real estate investing and that real-world investing is more complex. Nevertheless, the lessons learned in Monopoly can provide a great foundation for understanding the basics of commercial real estate investing and can help you make more informed decisions in the future.