Monopoly The Board Game
I have never really been a big board game person. One game that I have always enjoyed playing however is Monopoly. For one reason or another I loved getting the family together when I was a kid to play Monopoly. I think I liked the game because in the game you build wealth through owning real estate and you charge the other players huge rents when they land on your properties! Even before I knew that I wanted to be an entrepreneur the concept of building wealth always interested me.
The funny thing is that as I grew older and began becoming interested in real estate as an investment, I started to see the value that the game Monopoly had taught me when I was younger. I began to realize that the principles taught in the game also apply in real life! For example, one of the things I gained from playing Monopoly was that I started to develop skills such as negotiation because you are constantly negotiating deals with other players.
To win in the game of Monopoly, you want to own as much real estate as possible. You also want to develop those properties by building houses and hotels on them so that you can maximize the rent that you can charge the other players. The secret formula to do this is: 4 green houses = 1 red hotel. When you put a red hotel on your property you can charge the maximum amount of rent. I first started to realize this formula after reading many of the rich dad poor dad series by Robert Kiyosaki. He talks about Monopoly and the 4 green houses = 1 red hotel formula quite a bit.
Playing Monopoly In Real Life
In a real life scenario think of it this way. Most real estate investors start out buying single family homes or possibly small multifamily properties like a duplex or triplex. As you accumulate several of these smaller properties, you might start looking at how some of the bigger investors are making even more money in apartment complexes or commercial shopping centers.
Once you have bought several small residential properties, you might build up enough equity that you could afford to start investing in these larger commercial properties. You can either sell your small portfolio of properties and roll over the profits into your new commercial property purchase, or you could pull out equity through refinancing your smaller properties and using that money to purchase a larger property. My personal preference would probably be to refinance the smaller properties, that way I could still keep the small properties as investments.
The point is, the concept of 4 green houses = 1 red hotel means that you can pyramid up your investments as your equity increases from appreciation and debt pay down. Eventually if you keep repeating this process, you will start to build a portfolio of larger commercial properties that bring in massive amounts of passive cash flow every month. This is why they say that 90% of millionaires became so from real estate. It is a very simple process that anyone can replicate if they commit to learning about it and taking action.