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Discover 5 ways Monopoly Helps Property Developers

Monopoly will help you in the real world of property development – that’s a growing view that is taking on a lot more meaning during this current recession amongst many developers!
Surely not. Monopoly is a game of luck rather than skill, and I would never win second prize in a beauty contest unless only two entered!

But when you start to consider Monopoly as a business model and have in mind it was invented during The Great Depression of 1934, you wonder whether it is worth taking seriously. Some insist that using strategy and skill, Monopoly can be won, and certainly you can increase your odds of success by following some fundamental truths found in the real world of estate agents and property development.

So we took a look in detail and drew some interesting parallels.

Listen to your statistics:

Monopoly is a game of numbers and statistics and these stats are well documented.
For example, which three spaces are landed on most frequently?
1st Trafalgar Square
2nd Fenchurch Street Station
3rd The Go square

How many dice rolls will it take to break even on your investment when three houses are placed on the suggested Bow Street, Marlborough Street and Vine Street set? 9.5.
How about Mayfair with no houses? 120.52.
On average, how many rolls does it take to navigate around the board once? 5.
What percentage of rolls results in doubles? 17%.
To win at Monopoly regularly, one must know the maths.

Property Developers Lesson:
The same is true in property investing. When evaluating a property, know the numbers and statistics.
When we evaluate a potential purchase, we find comparable rents and sales. We also know how certain property features will impact rents and our ability to rent the property quickly. For example, we’ve learned that a fenced yard and basement are very important to many renters. And we have a good idea of the difference in rent between a three bedroom and four bedroom single family home. We consider expenses, such as property tax, insurance, and estimated maintenance and vacancy costs. We check current interest rates and calculate financing costs. From these numbers, we can estimate cash flow. Knowing these numbers cold is critical to getting the most out of your investment.

Below are percentages for landing on any of the squares of the monopoly game.
The figures also have to take into account the probabilities for visiting jail and being in jail. (Hopefully this part won’t reflect the reall world application for you!) Each square shows the percent chance that a player will land on it after a single roll of the dice. The statistics are based on how it works out in the long run, so dont get to concerned on a one off throw.

These numbers indicate the percent chance that you will “end up” on each square after a roll, not just land on it. This is the reason the Chance and Community Chest probabilities are low. These figures take into account being sent to another square because of a Chance card.

Long Term Probabilities for Ending Up on Each of the Squares in Monopoly

Square Probability % (Jail Short) Rank Probability % (Jail Long) Rank
Go 3.0961 3 2.9143 3
Old Kent Road 2.1314 36 2.0073 36
Community Chest 1.8849 37 1.7750 37
Whitechapel Road 2.1624 35 2.0369 35
Income Tax 2.3285 28 2.1934 27
Kings Cross Station 2.9631 6 2.8010 8
The Angel Islington 2.2621 32 2.1317 32
Chance 0.8650 40 0.8152 40
Euston Road 2.3210 29 2.1874 28
Pentonville Road 2.3003 30 2.1680 30
Visiting Jail 2.2695 31 2.1392 31
Pall Mall 2.7017 15 2.5560 15
Electric Company 2.6040 20 2.6140 13
Whitehall 2.3721 26 2.1741 29
Northumberland Avenue 2.4649 24 2.4255 22
Marylebone Station 2.9200 8 2.6354 11
Bow Street 2.7924 12 2.6802 9
Community Chest 2.5945 21 2.2957 24
Marlborough Street 2.9356 7 2.8210 6
Vine Street 3.0852 4 2.8118 7
Free Parking 2.8836 9 2.8253 5
Strand 2.8358 10 2.6143 12
Chance 1.0480 38 1.0448 38
Fleet Street 2.7357 13 2.5671 14
Trafalgar Square 3.1858 2 2.9929 2
Fenchurch Street Station 3.0659 5 2.8930 4
Leicester Square 2.7072 14 2.5370 16
Coventry Street 2.6789 16 2.5191 18
Water Works 2.8074 11 2.6507 10
Piccadilly 2.5861 22 2.4381 21
Go To Jail 0.0000 41 0.0000 41
Regent Street 2.6774 17 2.5236 17
Oxford Street 2.6252 19 2.4721 20
Community Chest 2.3661 27 2.2276 26
Bond Street 2.5006 23 2.3531 23
Liverpool St Station 2.4326 25 2.2906 25
Chance 0.8669 39 0.8158 39
Park Lane 2.1864 33 2.0595 33
Luxury Tax 2.1799 34 2.0521 34
Mayfair 2.6260 18 2.4832 19
In Jail 3.9499 1 9.4569 1

Location, Location its all about location:

If you could start a game by buying a set of properties of your choice on the board, which set would you pick?
Many would pick the Mayfair and Park Lane set, because you can charge the highest rent when some one lands on your property. Others would pick the Regent Street, Oxford Street and Bond Street set because rents are still high and you own three properties, thus increasing the chance of collecting rent.
Both options would be a strategic mistake though as the best group to own is the Bow Street, Marlborough Street and Vine Street set. Why? Because rolling a 6 or 8 from jail lands a player on these properties, in other words its a fact, they receive the most traffic on the board. Although the rents aren’t as high as other properties, neither is the cost to buy or improve them. This is where it’s about the long term ROI (return on investment).

Property Developers Lesson:
Location is critical to the real world of investing in property. Even within the same neighborhood, similar houses can vary significantly in value and rental income potential. studying the area where you invest and keeping updated on new developments is critical to successful investing. The best rental investments are not in the least expensive areas like Old Kent Road and Whitechapel Road or the most expensive areas like Mayfair and Park Lane. The real world shows that the best rental values are in nice, safe middle class neighborhoods and in decent school districts.

Discover 5 ways Monopoly Helps Property Developers

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Don’t over improve your property:

Once you have a set, and are able to build houses you will need cash to make improvements. So what is the best way to add investment and improve your property? You shouldn’t add four houses and then a hotel just because you can afford it? Over improving a property in monopoly can deplete your cash and make it almost impossible to ever break even on your investment. And how much you improve a property will vary from set to the next. The best choice depends on the cost of improvements and the potential return. For the Bow Street, Marlborough Street and Vine Street group, it’s best to add 3 houses on the properties. The cost-benefit analysis doesn’t justify a fourth house or eventual hotel.

Property Developers Lesson:
The same is true in the real world. When you buy homes that need work and improvement, you don’t want to over improve the property for the area. Just look for improvements that increase the home’s value or rents or that help rent the property more quickly. If an improvement does neither then it may be best to hold the investment.

More ways Monopoly Helps Property Developers tomorrow

posted by Zane in Buying,For Sale,Guide,Lending,Mortgage,Property,Recession,Relocation,Renting and have Comments (3)

3 Responses to “Discover 5 ways Monopoly Helps Property Developers”

  1. […] ways Monopoly Helps Property Developers Yesterday we looked at how Monoply can teach lessons in the real world of property development. When it comes to selected the right location for investment and knowing whether to make […]

  2. property pete says:

    What a great article, I never thought Monopoly will help you in the real world of property development
    I’ll have this in mind

    Love the whole concept and as you say it was created during the great depression of the thirties

  3. Zanet says:

    Thanks Pete
    we had fun thinking through the process and seeing how Monopoly provides some property lessons

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