Monopoly: Looking at Real Estate Through Lens of Board Game

Monopoly: Looking at Real Estate Through Lens of Board Game

Frank Voisin writes about value investing topics at http://www.frankvoisin.com

For some Friday fun, I thought I’d take a look at the returns on investment for each Monopoly tile. The first chart shows the purchase price, cost to build a house and hotel, and the associated rents of each property:


Monopoly Base Case

With this starting point, we can then calculate the return at each level of investment. I have added a heat map to each column to help suss out any interesting patterns.


Monopoly Property ROI

I was surprised by the results. I would not have guessed in advance that Connecticut Ave with a hotel produces the greatest ROI achievable in the game, nor would I have guessed that this return would be a staggering 6410 bp greater than the lowest performing property with a hotel. In general, the gap between the best and worst performer in each improvement category is far greater than I expected.

I was also surprised to see that the more expensive properties produce significantly greater returns. For example, Boardwalk with no improvements trades for just 8x its rental income, whereas Mediterranean Ave trades for a whopping 30.3x.

This remains generally true as you build houses however there are notable exceptions which the heat map illustrates. As we move down the columns, we see that there are anomalies where it makes more sense to build houses on lower priced properties instead of on the higher priced properties. For example, Virginia Ave (purple) has a significantly higher return than North Carolina Ave (green) beginning at 3 houses. As more is invested in these properties, the gap grows.

It is interesting to note that two properties at polar opposites on the value scale, Mediterranean Ave and Boardwalk, act as clear outliers from the others. Is this because they are the most memorable to players and thus most inefficiently priced? Mediterranean produces about 1/2 the returns of its nearest neighbour, Baltic. An unimproved Mediterranean and an unimproved Baltic produce returns that are 334bp apart, whereas Baltic and the second most expensive property on the board, Park Place, are an equivalent 333bp apart. A similar gap exists between Park Place and Board Walk at the high end of the spectrum. Mediterranean is a classic value trap, whereas Baltic appears to be a good value opportunity.

There are a few properties which should be considered highly desirable as they produce outsized returns for their neighbourhoods. New York Avenue is one, and the yellow properties of Atlantic, Ventnor and Marvin Gardens as well. These may be benefiting from abnormal demand from police and correctional officers on high government salaries.

Two groups of properties exhibit “crossover” in that they move from relatively strong (weak) performers to relatively weak (strong) performers. The blue properties become great investments as you invest in more houses, whereas the green properties do the opposite. Is this because people want to live near free parking, but not near crime that is so reprehensible that you are sent directly to jail without due process?

What are your takeaways from these Monopoly property ROIs?