Why the heck are we talking about, a board game?
When people in the very final stages of their life were asked, “what they regretted,” the response that often came up was that they wished they ‘played’ more. (Also in the top responses was a regret of spending so much time at work) The point is, although we are making investments and working hard, we should not forget to ‘play’ or have fun. I had a friend that played hours of video game baseball. Other than the fact that nobody plays baseball on video games, I always gave him crap. Now a little wiser, I realize that he was right… it made him happy and that was important (Side note: I do not condone mindless World of Warcraft addictions). Read on for the second lesson from this board game.
For the past decade, one award-winning board game called “Settlers of Catan”, has built up a huge, cult-like following, garnering hundreds of 5-Star reviews on Amazon and played by normal people unlike the Magic Gathering Card game or Dungeons and Dragons. In other words, females play this game and guys, who could probably save their lives by throwing a football play it too. If you have not heard of this game then you probably have never heard of BiggerPockets.com and you live under a rock. The strategy-intensive game, is intended to last less than 45 minutes. During that time, players collect resources and use them to build roads, settlements, and cities on their way to victory.
Check out this well made 4 minute documentary on the game.
The board game presents players with many decisions that parallel those facing many experienced real estate investors. In Settlers of Catan, there are 5 resources which include sheep, lumber, ore, brick, and grain. In the beginning of the game, sheep and wood are sought after, whereas in the dramatic ending of the game, ore is needed to lock in a win. Side note – I actually have a t-shirt that says “Nobody wants your F-ing Sheep” because as a typical occurrence in every game there is always one unfortunate player who is lagging behind and still trying to peddle their surplus of sheep.
The life cycle of an investor starts with typical equity building with rentals that utilize leverage (sheep/wood) and progress to larger deals (brick/grain). As the investor reaches the second half of their progression and surpassed the “critical point” where they have amassed enough equity build-up to live off their “dividends,” the investor will look to convert their portfolio to a more cash flowing portfolio via de-leveraged rentals, private lending, or notes (ore in Settlers of Catan). This stage is often called the end-game strategy. So often I see newbie investors with low cashflow/low assets with shiny object syndrome and want to get into notes or land contracts because that happened to be what Guru seminar they attended.
So if you don’t care about this fricking game and skipped ahead to the conclusion here it is. Whatever path you take in investing keep the end in mind… the end game… the goal. Have a series of if/then exit strategies in mind with everything you invest in. A few examples:
- A lot of people talk to me and say that they are tired of investing for appreciation and want to go for 100% cashflow to hold on to indefinitely. Having a few years of experience I realize that nothing is forever and things happen. Those investments that you bought, might have gone up in value 20% and it makes sense to cash out or you find another investment that is so much sweeter. But at the time of purchase, you did not think of these potential decisions when you bought the low 40k homes or a duplex/triplex/quad that are inherently harder to sell to a retail buyer as your exit strategy. Perhaps buying a higher price single family home would have been a better way to go (forgoing optimum cashflow).
- You have that meeting with a lawyer who sells you on this elaborate corporate structure but it might be a bit overkill since your dreams of building a 50 home portfolio transitions to other investments.
- You waste your time and money creating a small network of contractors to serve as part-time staff to service your 3 duplexes in the area. However, now it looks like you should sell and you wasted all that sweat equity in creating that system.
- You heard about the wonders of the Self-Directed IRA from a local Real Estate meeting and rush out to make the conversion and deploy your cash into a Real Estate notes. Now you realize that you have lost your leveraging ability but more importantly you are unable to use your IRA as cash reserves to get Fannie Mae loans.
SPC Git Er’ Done Action Plan:
- Don’t let this article give you an excuse for analysis paralysis, but inspire you to find that mentor who can help. You will never know all there needs to know by yourself.
- If you have implemented your Real Estate plan and looking for something fun to do, go out and enjoy life and buy this game! (Help support the site buy via Amazon affiliate link)