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What This Crazy Monopoly Game Showed Me About the Real Estate Market

by Ian Kuchman on December 10, 2013 · 11 comments

  
Monopoly

It’s always a good time when you can get together with friends and family, far and wide, to play the classic game of Monopoly.

This past weekend, I was able to get my wife and two daughters all together for an epic game. It is amazing how this game can be so fun and satisfying to so many different kinds of minds. You’ve got me: the typical REI guy who thinks naturally about how real estate works. Then you’ve got my wife who has zero interest in the actual real estate business, but has a natural competitive edge, and can drive a hard bargain. And then you’ve got the two girls who want to buy as many properties as possible, and will do ANYTHING to acquire them (foreshadowing of the pre-2008 buyers market?)

The Game

The game starts off as usual. We roll the dice, do a couple laps around the board, and see how the cards fall by pure luck of the draw. I’m thinking that this is going to start getting boring after much longer, but what comes next was actually quite interesting.

I’m observing how everyone is reacting to how things are developing. I actually developed the first monopoly and built houses on the yellow properties. A couple of people landed on them right away, and they began cash flowing quite well. This ended up turning into a buyer craze for everybody else. Everyone had to have monopolies and start building houses, no matter what.

When I saw this, I immediately thought “housing bubble, 2008 financial crisis, SELL, SELL, SELL”.

The girls seriously would have given me their real bank accounts for the 2 monopolies that I had accumulated. So I sold them two totally developed monopolies for some serious cash and payment plans. I had essentially turned into the bank! I put a ridiculous amount of cash in my pocket, and had money continuously working for me.

What really made this strategy effective is that I had essentially depleted my opponent’s pockets. Every time they landed on each other’s houses, they’d have to mortgage their properties. On top of that, they were still paying off their debt with me each turn.

We ended up running out of time, so we ended the game by counting up our assets. As suspected, I had accumulated the most assets by this time, with only one railroad in my portfolio. I didn’t quite realize it yet, but I had just witnessed the coolest way to win in monopoly, contraire to conventional wisdom.

So What Can We Learn From This Game?

First of all, there are obvious differences between the monopoly game, and the real world market. Cash flow models are different, inflation of cash is not representative in the game, limited populations, and the limited time frames are just a few.

What the real take-away is that you’re not going to be maximizing your impact if you’re doing what everyone else is doing. When you’re doing what everyone else is doing the competition is too high, the reward is sparse, and the effort required to make an impact is unsustainable.

What this little game has proven to me is that you want to be zagging when everyone else is zigging. We do this by either approaching the market from a different angle, or by tapping into virgin ground. For example, everyone in our game was property crazed. The competition was furious and loud. By recognizing that cash in that game was an equally legitimate commodity, and that nobody was interested in keeping it, I was able to sell off my properties at prices way above the amount of cash that I had spent. I was able to set my own price, without the pressure of other competition. While everyone was busy spending, I was busy cashing out.

It was so fun seeing this economic phenomenon play out right in front of me at such a small scale. Usually seeing stuff like this play out in the real world takes years of data, lot’s of lost dollars, and our involvement is weighted at a micro scale. It was enlightening for me, but also a terrific example to teach my entrepreneurial kids.

The question is, what will be zigging next time, and will you be zigging or zagging? 

By the way, my reference to zigging and zagging comes from the book by Marty Neurmier, “Zag: The Number One Strategy of High-Performance Brands“. In it, Marty makes the suggestions that “When everybody zigs, zag,” Good stuff, thanks Marty.

Related: How to Never Lose Monopoly Again

Photo Credit: DavidDMuir

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{ 11 comments… read them below or add one }

Roy Schauer December 10, 2013 at 1:50 pm

Good points! Just goes to show how creative thinking can change “your” game. We played cash flow 101, with some modifications, this past weekend. It’s interesting to see the different approaches to wealth building people have.

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Brandon Turner December 10, 2013 at 3:45 pm

Hey Ian, great post! Though, I have to say I’m convinced you would have lost had the game gone on long enough. Without assets, your cash will only serve as a holding place for your opponents until you land on their properties. Short term, the cash feels great, but the only way to win in the long-run is with property :) And yes, there are about a million lessons in there about flipping vs. buy and hold vs. wholesaling :)

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Ian Kuchman December 10, 2013 at 4:29 pm

BT – I hear ya on that. But, I’d like to think that I would have pivoted a little differently had the course of the game continued. Players would have sold their properties back to the bank, I would buy them back at a cost less than what I sold them for, and I would slowly re-purpose my worth in real estate as you suggest.

I love how this continues to play out so similar to the post 2008 financial crisis. The ones who made out like bandits are the ones who sold during the bubble and quickly bought when prices plummeted.

Thanks for geeking out with me here ;)

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Tom Sylvester December 11, 2013 at 5:20 am

Ian – Your latest response is exactly what I was going to suggest, so it is awesome that you suggested it first. The competition was high, you saw it and sold above value. If we wanted to be really geeky, we could take your total cost and run some calculations just to see how well you made out. As Brandon mentioned, the one who wins over the long haul are the ones with property. But getting out of the property game when prices are high and reducing the cash reserves of your competitors is a smart move. Like you said, as they run low on funds, you may be able to purchase the property back at a significant discount and still have great cash reserves.

BTW – I love looking for correlations to business/real estate in other areas. I tend to find that there are a handful of concepts that tend to apply, regardless of the context.

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Sharon Vornholt December 10, 2013 at 4:19 pm

Ian –

Great post and I love your strategy. I may need to haul out the old Monopoly game over the holidays.

Sharon

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Ian Kuchman December 10, 2013 at 4:32 pm

Sharon, you should do it! I bet you discover/reaffirm things that you would never think possible in a monopoly game.

p.s. – excellent interview you posted today :)

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Geoff December 10, 2013 at 6:15 pm

Interesting how “strategy” has changed over the course of playing the same game all these years.

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Dennis Lanni December 10, 2013 at 9:54 pm

Really cool post. It got me thinking about how popular owning real property is right now across the county. From turnkey rental companies to Wall Street landlords, it has become a crowded space. Sort of scary

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Jonna Weber December 11, 2013 at 10:18 am

Nice correlation! I like playing Monopoly and the game Life with my kids – lots of lessons in both. In this market we are experiencing right now- I am curious what others think it means to be “Zagging” right now in real world terms for investors. There is so much hype about RE Investing in the marketplace – people are jumping into the game, or essentially, “Zigging”. So, where does that leave the Zaggers?

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Shaun December 16, 2013 at 12:06 am

How did you structure the notes?
Did they comply with the SAFE Act and Dodd-Frank?
:)

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Ian Kuchman December 16, 2013 at 6:42 am

:) it actually worked out quite well without any regulation. Go figure.

Reply

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