//You make money AFTER you buy property

YOU MAKE MONEY AFTER YOU BUY PROPERTY 

I really enjoy writing these Calnan Flack Blogs and both the feedback and what I learn myself never ceases to amaze me. I had one of those “Ah” moments in response to Ian’s Monopoly Walk when an Investment Club Member James pointed out the obvious to me.

See the best place to hide something from someone is right under their nose, in plain sight, but where no one ever sees.

According to Wikipedia Knight Frank has “370 offices in 55 countries and more than 12,000 employees handle in excess of US$817 billion (£498 billion) worth of commercial, agricultural and residential real estate annually.”

It’s a massive commercial enterprise. Their logo is well recognised, and they have exceptionally strong brand recognition throughout the world.

But have you ever “looked” at the logo?

Really looked at it and thought what does it represent? Take a look, what do you see?

That’s right – 4 Red Hotels!

Now I don’t mean to bang on too much about the game Monopoly, but I just can’t make the point strongly enough.

AS INVESTORS YOU MUST LEARN FROM THE GAME OF MONOPOLY!

It’s such a fascinating game that as investors we can take a great deal away from as it mimics life just so aptly.

Although some of the rules seem a little farfetched they are absolutely so true.

Monopoly players around the kitchen table think the game is all about accumulation. You know, making a lot of money. But the real object is to bankrupt your opponents as quickly as possible. To have just enough so that everybody else has nothing.” Richard Marinaccio, 2009 U.S. Champion.

Here are just a few examples that we can learn from.

THE RULES

Rule: – The Bank “never goes broke.” If the Bank runs out of money, the Banker may issue as much as needed by writing on any ordinary paper.”

Although understood by very few, “Helicopter” Ben Bernanke understood this rule and used it to his advantage as he tried to solve the credit woes of the GFC.

As investors, by understanding how this works, you will come to understand just why the economy MUST result in a boom bust cycle.

You will also understand how the current Royal Commission will not and cannot fundamentally alter the role that banks play within our economic system.

Rule:There are 32 houses and 12 hotels in a game of Monopoly. However, unlike money, there is a finite supply and no substitutes are allowed.

Even in Monopoly there is a “Housing Shortage and Affordability” crisis!

If the bank runs out of houses you must wait until another player sells houses or buys a hotel before you can buy a green house as there are strictly 32 houses only!

Rule: – When you have four green houses you may trade up for a hotel.

When you own all the properties of the same colour you have a monopoly and you are allowed to build houses and hotels on these properties.

Trading up to a hotel will increase the supply of green houses – again increasing the length of the game. Remember the art to winning the game is to starve your opponents of opportunities, so think strategically before doing this.

Just like in real life, sometimes more money is made by restricting supply.

Rule: – Even though you are in Jail, you may buy or sell property, buy or sell houses and hotels and collect rent.

This rule is very interesting and replicates a real moral dilemma e.g. crooks like Allan Bond are placed “in Jail” yet they can continue to amass a fortune behind bars ready to collect once they pass GO.

HOUSE RULES

It’s important to understand that there are many “House Rules” that the game of monopoly is typically played under that were NOT part of the original rules. These rules significantly alter the outcome of the game.

The most common of these is:

House Rule: – Anytime someone pays taxes or a fee (Jail, Income, Luxury, etc.), the money is placed in the middle of the board. When a player lands on Free Parking, they get all the money in the middle of the board.

Nowhere in the rules does it say this.

This is an additional “house rule” – and will increase the supply of money and hence increases the longevity of the game.

Remember the purpose of the game is to bankrupt your opponents as quickly as possible. The more available money, the longer the game will continue.

HOW TO WIN

Below are some strategies to help you win at the game of Monopoly.

But more importantly please think about these strategies and how they could be applied in real life!

  1. Buy as much property as quickly as you can. The more property you have, the more rent you collect. Buying properties early in the game dramatically increases your chances of winning.
  2. DON’T save your money, be aggressive early. There is NO incentive in Monopoly to play conservatively and wait. You only make money AFTER you have property. NOT before.
  3. Secure monopolies. Don’t leave open spaces in a colour group. Buy them so that you can control the entire colour group.
  4. Block Monopolies. It can be advantageous to purchase properties other players want blocking them from creating monopolies. Also, it will enable you to trade them later or just stop that player from buying green houses.
  5. Buy Green Houses. As soon as you get a monopoly, start building green houses. You will increase the rent you collect as you increase the number of houses you own.
  6. Cause a housing shortage. Purchase green houses to restrict their supply and especially place them on the low-rent colour groups. Don’t trade up to hotels as this will increase the availability of houses to your opponents.
  7. Gang up on strong players. There is nothing in the rules to stop you forming an alliance with other players to block their monopolies and prevent them from gaining an advantage. Just choose your allies wisely.

HOW MONOPOLY RELATES TO REAL LIFE 

We know that we are at the early stages of this new cycle and are currently BEFORE the Mid-cycle slowdown, so what is stopping you from buying property now?

Why are you not using your understanding of both the cycle AND the learning from the game of monopoly to get going?

Reckless players will go bankrupt very quickly in monopoly as they will in real life. But just as in the game “there is NO incentive in Monopoly to play conservatively and wait.” – the same could be said to investors in the early part of the cycle.

Remember: You only make money AFTER you have property. NOT before.

At Calnan Flack we love helping clients invest utilising the cycle and we’d love to help you too.

IMPORTANT NOTICE

Disclaimer: Any opinions or recommendations expressed here do not purport to Financial Advice but rather should be considered General Advice and does not take into account your personal needs and objectives or your financial circumstances. You should therefore consider these matters yourself before deciding whether the advice is appropriate to you and whether you should act upon it. Should Financial Advice be sought, we suggest you seek such advice from an appropriately qualified advisor. Any yields, rental income, tax rates, interest rates, depreciation rates, inflation rates Dividends per Share (DPS) and Earning Per Share (EPS) etc shown are estimates only and should not be used as a guide to future performance. Past performance is not necessarily a guide to future performance and should not be relied upon for this purpose. Authorised Representative of PGW Financial Services Pty Ltd – AFSL 384713
2018-09-20T16:11:14+00:00

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