7 Things Monopoly Teaches Us About Home Financing

Few classic board games offer the same educational zeal that comes with playing Monopoly. Aside from learning who among your friends is most insistent about being the race car — and who is most likely to flip the game board when things aren’t going their way — kids encounter the basics of investment, taxation, and leveraging for the first time. Monopoly is centered on real estate wheelings and dealings, on picking the right properties and building them up to get an upper hand in the game.

It’s also a game where players can work with the rules available to make arrangements on their own, benefiting one another through non-traditional means. The equivalent in modern real estate comes from the world of alternative financing, including homes for sale by owner financing, rent to own, lease purchase, and similar arrangements. Okay, so traditional gameplay doesn’t expressly involve lease purchasing or owner financed deals, but some of the winning strategies players use in Monopoly offer great insights into buying your first home with an alt-fi deal.

First, here’s a refresher on the basics, in case it’s been a while.

Of course, there’s a whole lot more than just that. Like with real-life real estate investing, there are unexpected twists and turns that test your resolve and strategy, especially when you play outside the box. What can buyers looking to purchase a home with alternative financing learn from Monopoly, though?

Here are some things for starters.

7 Things Monopoly Teaches Us About Alternative Home Financing

First of all, house rules apply.

Over time, families who play often enough will tailor the rules of Monopoly to suit their style and needs to maximize their fun. Negotiation is something that, while not necessarily part of the written rules, becomes important when playing complex and time consuming board games.

In traditional real estate sales, the rules are generally pretty hard and fast, but when it comes to alternative financing, there’s considerably more wiggle room. Arrangements such as owner-financing and rent to own offer buyers the chance to customize an agreement to suit their specific buying needs.

Knowledge is power.

A healthy understanding of how the game is played is key to success. Knowing the finer details of Monopoly can provide experienced players with the upper hand over people who are only half playing the game (I’m looking at you, Aunt Cindy). Using moves like property auctions and finding the loopholes out of payments and jail terms can be a great boon to experienced Monopoly gamers.

Related: Real Estate Is Like A Roller Coaster (Learn To Enjoy The Ride!)
In the case of alternative financing, the rules of the game are formed by contracts and legal protections. Knowing what to look for in your contract, right down to who pays taxes, who makes repairs during a financing period, and even who owns appliances is key to preventing pitfalls and getting everything you signed up for. And always know all the conditions of the sale before you sign.

Remember, though, when there’s too much space between the rule book and how you play, or someone doesn’t fully understand the rules, there’s also a lot of room for cheating. If something seems deviates too far from standard home buying practices or seems too be good to be true, there might be trouble.

Buy wise… and within your limits.

The prettiest properties on the board are often the most difficult investments when you’re first starting off. Dropping a hotel on Park Place or Boardwalk sounds like the creme-de-la-creme Monopoly mogul move, but if you start putting expensive properties on expensive turf immediately, your maintenance fees go through the roof.

Starting modestly with a home that won’t break your bank is key to alternative financing as well. Especially for rent to own and lease option agreements, your ability to secure a mortgage at the end of the lease term is centered on the price of the property and your creditworthiness. Just because you can afford a bigger house doesn’t necessarily mean it’s the right investment.

Make deals without the bank.

And know when and how the bank is your friend above all. Sometimes the bank is your older brother, who is not going to extend you a line of credit no matter what. Other times, it’s your best friend, who is there to help you out when you need it.

Either way, Monopoly is about finding ways to finance your investments and make the most of opportunity –with or without help from the monocle man at the bank. This is what’s at the heart of alternative home buying. A rent to own deal, for example, allows the buyer to make an arrangement with the seller without including the bank at first, then take the steps necessary over the course of a lease term to get the best possible mortgage deal. Knowing when to look into a loan (and when to hold off) can make a big difference in your investment.

Plan for long term costs.

Don’t spend yourself too thin. There’s a reason Monopoly’s chance cards are called chance cards. Landing on that space can bolster your savings or send you to jail, causing a big hit on your progress around the board. You never know when you’re going to land on the Luxury Tax.

Life, like Monopoly, moves in small, unpredictable rolls of the proverbial dice. Homebuyers entering into owner-financed or lease option agreements often put down less than the 10 to 20 percent down payment associated with a traditional mortgage to get started — which is great, especially for young families whose savings may not total in the tens of thousands of dollars just yet.

However, if you only have five grand in the bank and your option fee is five grand, you’re setting yourself up for potential hardship by emptying your coffers financing a home. Always have an emergency fund, and spend on lease-period improvements and investments only where you have enough of a cushion.

Diversify wisely.

Putting your whole investment in one place is no way to win the game. Adding multiple houses and hotels to one color set in Monopoly seems like a great way to set a trap for competitors, but in reality, you likely are setting a trap for yourself.

Yes, grow your most important investments in both Monopoly and in life, but also be sure to have a wide, diverse range of other alternatives to help bolster your main investment. Don’t sap out your retirement or stock investments to invest entirely in real estate, for example. Owning the railroads, distributed throughout the board, can be as valuable as locking down one high dollar color set.

If you don’t know, ask!

Sometimes, a situation comes up and no one really knows how to react to it. For just this reason, every Monopoly game board comes with a detailed set of instructions that outline the rules of play for anyone sitting around the table to read.

And in the real world, laws and good practices are laid out for everyone as well — protecting buyers and sellers alike from scams and the headaches that come along with uncertainty. Because of the complexity of any real estate sale, though, you may find yourself looking for a professional to help you decipher the law and make sure you’re on the right path. Lawyers, loan officers, inspectors, and title companies are available to help buyers avoid getting scammed, so you should never hesitate to reach out every step along the way.

And finally… hey, may I be the Scottie dog?

What lessons have YOU learned from the classic game of Monopoly? What’s your favorite real life-related game?

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.