Monopoly is a firm family favourite – a board game that has no doubt caused many family domestics since it was first released in 1935. It’s an addictive (and sometimes never ending) game focused on the London property market where each player has the opportunity to embrace their inner property tycoon.
The aim of the game is simple; purchase, invest in, and develop your own property and collect rent from other players with the intention to bankrupt them so you can ultimately reign as King of the Board. For most, Monopoly was introduced to us by our parents and is seen as a light hearted game to entertain the kids on a rainy day. However, is there more to this light hearted family favourite? Can we instead thank our parents for beginning to sew the seeds of sound investment and financial knowledge in the hope that our families turn into the next generation of savvy property developers?
We are probably all guilty of attempting to purchase Mayfair and Park Lane before any of our competitors can and focusing on the higher level of rent payable, however, by the time we have got enough funds to purchase them they are very rarely landed on! Meanwhile, our competitors are wiping the floor with us after purchasing the more modest and middle budget properties across the board such as Pentonville Road and Oxford Street.
Similarly, in a modern day and real life situation, one should ask themselves the same question. Is it worth it? Including a few high end or trophy properties into your portfolio in order to develop and promote a luxury and well respected reputation can be an attractive prospect. However, realistically these properties are expensive, both to purchase and maintain. If you purchase a few high end properties at a larger purchase price, yes you will get paid a higher rent but realistically the property has already reached its maximum possible value and no level of expenditure will increase or enhance your returns. However, a larger portfolio of mid range properties is arguably better – purchasing low and selling at a high. A little investment into these middle range properties will allow room for development and essentially a higher level and rate of return.
A little more diversification and a broader approach of purchasing a range of properties around the board often wins the game. It is inevitably teaching our children the old age motto of not placing all of your eggs in the one basket!
In Monopoly there are often two types of player. The first spends everything they have and hope that their competitors fall bankrupt, land on their properties and pay them rent or alternatively land on a Community Chest and win a beauty contest (instant win of $15)! On the other hand, there are the conservative players who strategically spend their funds, purchasing property with a long term game plan with the knowledge that anything could happen.
In the real world this is also applicable. If you move aimlessly around the Monopoly board purchasing whichever property you land on, when the time comes to paying your financial obligations, you are likely to run out of cash. When you have no cash you have to start selling off the properties you acquired at a considerable discount to the initial purchase price. Selling each property at such a heavy discount results in a slower and significantly reduced rental income and essentially a complete loss of capital, all simply because you picked up a Chance card and had to pay a Parking ticket!
Not all individuals in the real world will have to pay a bail as they landed on “Go directly to Jail. Do not pass go. Do not collect £200” space, of course, yet the theory remains applicable. Cash flow is vital to survival. We only have to look at the recent events of the recession in 2008 where cash was limited, if not non-existent for some institutions resulting in property owners often selling their assets at a significant discount to ensure that they came out the other side not being bankrupt! Alternatively, those that had cash available were able to diversify into shares, stocks, and property at a later date and were able to take advantage of purchasing assets at a extremely low price and selling years later with a significant profit.
Negotiation and Competition
It (literally) pays to be nice! In today’s markets we are likely to want to conduct or enter into business with those who have good personal skills. You don’t have to be so nice that you are walked over, however we need to be personable. Listen to others, be friendly and maintain good negotiating skills to ensure that you move forward. If you meet clients and are unwilling to budge or negotiate your way to a compromise you are inevitably going to fail.
The same applies on the Monopoly board. We need to be good team players in order to move forward and ultimately be the last one standing. We must pay rental income where it is due, learn to bargain for prices on properties that are being auctioned and try to avoid creating any family arguments by being friendly to our fellow competitors!
On the other hand, our children ought to be wary that all players are trying to win – every man for himself! You may be looking to purchase Kings Cross to complete your Station collection but don’t forget that if anyone else lands on there first they are likely to purchase straight away without any consideration for your requirements. Our children and next generation should not shy away from such competition, this is common place in the real world and the earlier this is learnt the sooner it is accepted and clever tactics can be learnt and applied into the real world later on in life.
How does this help the next generation?
Interestingly, numerous family offices and offshore structures are primarily established or structured around property investment and development. Local or national properties both in the UK and further afield are being purchased and held though efficient and beneficial offshore structuring. The beneficial owners behind these structures are characteristically well experienced business men or women. They have all of the above traits and have grown to understand and appreciate the minefield of the property world.
More often that not these clients were not born into wealth and are not instantly able to purchase million pound deals from day one. Just like Monopoly, the real world can at times be tedious and we need to ensure that the younger generation are aware that hard work pays off in the end. We just need to keep our eyes on the end prize.
Our children need to understand and learn to play the game of life – we don’t always win and sometimes it isn’t fair. However, if we can assist our next generation in learning and adapting good financial and investment skills from an early age we can rest confidently knowing we have done all we can to ensure that any current family wealth is sustained in the best possible hands, or alternatively, raise a generation that will one day be developing their own property portfolio. So lets dust off that old Monopoly box and get playing!