Welcome my friends back to the musings of my mind. Last week I was talking about compounding resources and specifically interest. This week I want to continue my thoughts about compounding though looking at it through the lens of a game. As I have mentioned a couple of times, I enjoy games. I think most games that exist have lessons that are applicable in business and life. Please hang with me and we can roll some dice together.
The game I would like to discuss today is Settler’s of Cataan. In this game players obtain resources from placing settlements on tiles and using the resources to build more settlements. Each new settlement generates new resources, and there is the possibility of upgrading a settlement to a city which generates even more resources. Each city or settlement gives the player points and the game ends when a player reaches a pre-determined amount of points. The players can also choose to use the resources to buy cards which do various things, including giving points. On a side note I very much recommend this game for families or for anyone who likes games. There is strategy and community building and socialization. Even for people that do not like typical strategy games there is enjoyment to be had in this game.
So the way I typically play this game is just to build up as many settlements/cities as I can and get as many resources as possible each turn. That is where the compounding effect comes in. The more settlements you have, the more resources you make off each toss of the dice. Sadly this is just a board game, so there is no interest to utilize. My theory on this route of playing is that the more resources you have, the easier it is to either build or trade for something you need, ultimately leading to a feeling of satisfaction as new resources are added to your cache every turn, possibly even winning the game.
That is all well and good for a game, but why am I telling you about it? I feel like this can directly apply to rental real estate as well. The more properties you own, the more resources (or in this case cash…) comes in. Granting satisfaction and freedom and control over your life. Will owning rental real estate make you win the game? Depends on the game and what you want out of life. If the game you are playing is to give affordable safe clean housing to people, then yes real estate will help you win that game. If your game is to live comfortably and work only several hours a month maintaining your properties (or even better and not work at all because your apartment complex is big enough to have onsite staff), well that is what real estate is all about. So yes, rental real estate and increasing your monthly cashflow can indeed help you win the game.
There is another benefit to real estate as opposed to Settler’s. Like I said earlier, there is no interest in Settler’s, but there is in real life. So collect your rent checks from your tenants, then put the money someplace where it will grow some interest for a while until it is large enough to purchase another investment. In Settler’s once you buy something it is a permanent fixture on the board and the only wealth it holds is the future resources that is generated by having that settlement. In real estate, once you buy something it is still worth money that you put into it. You can leverage that value to accelerate buying another investment or even sell the property if you need a pile of money for something else. That is on top of the cashflow generated and that is the power of real estate. You buy something that still has value and provides cashflow. Using all of the benefits of owning real estate is a very good way to obtain personal financial freedom.
I believe games can teach as well as being enjoyable past times. Here is what I think Settler’s of Cataan can teach us. First that there is no competition in real estate. Work with the other people in the business and everyone will prosper. Next that it is best to create win-win scenarios whenever dealing with people. This makes both the game more enjoyable and makes life more prosperous and fulfilling. Last increasing the number of properties you own will increase your wealth and your options in what you can do. In all I think that there are opportunities to grow everywhere in your life, you just have to embrace them and apply those lessons.
Until next time, feel the fear and do it anyway.