Interpreting Commercial Real Estate through Monopoly!
Yes, you read correctly! Monopoly, the board game, where players roll two six-sided dices to navigate around the board, buying, trading, and developing properties. Although the genesis of Monopoly occurred in 1903, it was only marketed in 1935 - in the thick of The Great Depression. Seemingly a child’s play or a leisurely activity, playing Monopoly has many invaluable commercial real estate lessons that are actually applicable in the real world; we at JNM Specialists are listing a few in this article. 1. Location is of prime importance It is a general assumption that a few strategic locations on the board are smart investments because they garner higher rent. However, this assumption may be a vital mistake because you are not considering locations that receive maximum traffic. Observe how players frequently land themselves on properties because getting a 6, 8, or 9 with two dices has a higher probability (at least 1/3rd of the time). This will help you estimate and calculate your moves. Your commercial real estate investment, too, depends on the neighbouring community; additionally, the local economy has a big impact on your investment’s occupancy and its monetary value. Therefore, while investing, choose locations within economies that have a strong growth and recovery pattern. 2. Maintain substantial cash reserves In the game, when you land on a bank-owned property, the rent you pay cannot be contested. Similarly, when the game progresses, while properties are bought by different players, some may find themselves needing quick cash to remain solvent. This event becomes your opportunity. While large cash reserves allow you to capitalise on new property opportunities, it also ensures stability in times of a tenant vacancy, even an economic downturn. Therefore, to keep your commercial real estate property thriving in the face of a new commercial real estate investmentopportunity or an economic recession, ample cash reserve is required. 3. Asset diversification is crucial You may achieve a monopoly in the game; however, there are still several spaces and properties on the board, where the other players can possibly land apart from the one you created. A study by JP Morgan Asset Management concluded that diversification boosts total returns and lowers the overall volatility of any portfolio. Consequently, maintaining diversification between properties, railroads, and businesses help you generate income while you wait for other players to land on your monopoly. Likewise, owning commercial real estate that generates regular passive income and diversifying your assets portfolio to include exposure to a variety of different industries are examples of diversification. 4. Determine the value of cash flow The value of commercial real estate and its ability to ascend determines cash flow. Being vigilant and increasing your cash flow is a sure way to win in Monopoly. Comparably, acquiring commercial real estate that generates money and appreciates over time is a crucial determinant in commercial real estate investment as well.
If you are a commercial real estate buyer, agent, or investor, we hope this article helped you. Do you have other insights that you picked up from Monopoly? Share them in the comments section, below!
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