4 green houses, and then a red hotel.
That is the formula for winning Monopoly. The formula was drilled into my head as a child for building wealth and winning the game. I had no idea at the time that the formula could also be used in the real world for building wealth and massive cash flow as a real estate investor.
In the game of Monopoly, you want to invest in as many properties as possible. Once you own properties, you can collect rent from your opponents every time they land on your space and must rent your space for their turn. Land rents for the lowest price without any buildings on it. This is great at first because you are starting to collect rental income. But, once you get a taste of rental income (cash flow), you want even more. The next step in Monopoly is to improve your land and add rental income by investing in homes on your land. Each house you invest in on your property increases the amount of income you can collect as rent.
Once you have invested in rental homes on all your properties, there is only one thing left to do to maximize your income. It’s time to trade in the rental homes (using 1031 Exchanges) for an even bigger building on your property that will bring in more income. You trade your rental homes for an investment in a red hotel or apartment complex. Investing in the apartment complex maximizes the amount of rental income (cash flow) you receive. The more properties you own with red hotels, the more rent you can collect. The more rent your property collects, the bigger your rental income becomes and the faster you become wealthy.
Once you’ve invested in a few apartment complexes on your properties, the game becomes easy. You can sit back and wait for your opponents to rent your properties and collect the rental income. This is the time in the game you become truly wealthy.
To win the game Monopoly, you need to grow your wealth. You do that by buying properties and renting them out to strong renters. You start by investing in small single family homes. You add even more homes as you go. Then, when you have maximized your rental income through single family homes, it’s time to exchange them for bigger investment properties. You do this by investing in apartment complexes that collect even more rent. They help you grow your wealth rapidly.
Doing this over and over again allows you to build your wealth and income. It makes the game easy, allowing you to buy more properties and create even more income.
4 Green houses, then a red hotel or apartment complex is the formula for success in Monopoly but it is also the formula for building great wealth and massive cash flow in real estate investing.
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I knew my passion for Monopoly would pay off someday! Looks like I learned everything I need to know from playing that game. Guess the Monopoly champ trophy I have on my self isn’t as usless as people may think 😉 I’d like to point out too how you don’t buy property with loans. It’s all cash. You only mortgage a property when you’re in trouble and have no cash. Think there is somethig to that?
Jacob, thank you for your comments. I see you enjoyed Monopoly as much as I did as a kid. Now one of my favorite board games is Cashflow. One clarification I did want to make is that we usually do have loans when we buy properties, especially bigger ones. It would be very difficult to buy them without, but your point is very valid. You do not want to over-leverage your properties. A wise man once told me “if you don’t over-leverage your properties, they will make you rich. If you over-leverage them, you will lose them.” I think this has really shown to be true over the past 5 years.
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