I’m sure you’ve probably played Monopoly at some point in your life. During this game, you’ll purchase and develop properties (developing them by placing houses and then hotels on them), and sometimes you may even sell them. As you go along in the game, and when many of the properties have been purchased and developed, the rent you owe when you land on a property space can be quite high.
But, it’s definitely a relief to land on Free Parking, knowing that the dice must rotate to the next player, giving you a break from having to fork out rent. Like the game, in real life, it would be nice to avoid paying rent and even better to have people paying you rent for property you own.
Winning the game of Monopoly is all about investing. You travel around the board, hoping to buy the ultimate property as well as pass Go to get another $200. However, even though you’re hoping to purchase the “ultimate property”, you’re missing out on some other good properties along the way which could lead to upgrading each of them and bring you a great amount of rent money each time someone lands on that space.
Monopoly is a lot like purchasing a first home. If you start early with purchasing your first home, you have that chance to acquire a property with a minimum down payment, and inevitably, have a lower payment than paying rent for a similar home. As time goes on and the home appreciates and the loan amortizes, the equity grows. Within a few years of average appreciation, the down payment can double or triple based on the leverage of using other people’s money.
During this process, the first-time buyer or even a seasoned buyer could use the equity to stair-step their way into a larger home and finally, their dream home. Or, if that homeowner’s goal is to acquire rental properties, they could convert that home to a rental and buy another home on a low-down payment, owner-occupied mortgage to allow that property’s equity to grow in the same way.
Another option is multi-unit properties. Finance it with the same type of owner-occupied, low down payment mortgage to achieve leverage that isn’t available to non-owner-occupied investors; live in one unit and rent the others. FHA, VA, and conventional mortgages allow for owner occupants to purchase up to a four-unit building with minimum down payments.