Article: Shelter is a Game...not just a living expense

[Joshua Aycock]

You’re a player no matter what your situation is…you’re in the Real Estate game. It’s just a matter of what position you play. This is a philosophy I heard first on the BP Podcasts featuring Bryce Stewart. His episodes, specifically, have been incredibly influential on me.

Money is a game. There are rules, objectives, strategies, and outcomes that people strive for, just like football or soccer or pickleball. I view real estate in the same way: as a game.

For most people (I think), real estate is simply a means of living. Most people are faced with the problem of having a place to live and make one of two decisions: 1) buy a house, or 2) rent. However, if you want to play the game of real estate, your options open up.

Before We Begin — The Risks

Playing the game comes with risk, just like playing any game. There is risk of loss or “injury”. There is risk of failure or “losing”. There is reputation risk, mental-emotional-social risk. There are legal risks or “penalties” for doing things the wrong way.

I’ll acknowledge that playing certain positions in the game isn’t for everyone. Some of the role-specific risks are too great for some people to take on. Unfortunately, many people haven’t been taught/given/provided the tools/strategies/bandwidth/resources to get involved in certain positions.

Not all roles are created equal. Not all outcomes are equitable. Not all resources are evenly distributed. There are winners and losers in the real estate (and any) game.

“Playing” certain roles/positions in real estate requires that you have capital, know-how, resources, and connections to do so. The position you “get to” play requires different types of mindsets, too.

The Players

“Playing” the real estate game goes beyond just buying a house to live in. I’ll divide “the Game” into four categories of players:

1. The Renters — people who don’t own the property they use for shelter.
2. The Homeowners — the people who buy a property for shelter.
3. The Investors — the people who buy a property for other people’s shelter (renters).
4. The Supporters — the people who make the investors’ deals happen (real estate agents, loan officers, title companies, contractors etc.)
5. The Financiers — the banks that lend to Homeowners and Investors

There is a high barrier to entry to play certain positions

Participating as a Homeowner or Investor requires capital in the form of financial reserves, down payments, and closing costs. Even after purchase, there are significant capital expenditures required to keep the house maintained and functional.

Participating as a Supporter requires professional experience. To become a real estate agent requires licensing. Becoming an appraiser, mortgage loan officer, or banker requires professional accreditation and experience.

The Investor-players seek opportunities to bring value to Renters in exchange for monthly income. The Renters exchange their monthly income for shelter. Investors, theoretically, are incentivized to maximize value in their property, to maximize the return from their investments.

The Financiers back the Homeowners and Investors by providing debt instruments. They expect to be repaid over time for taking the risk on the players purchasing their respective shelters.

The players of the game interact with each other to find each of their own best-outcomes.

In the Real Estate Game ecosystem, everyone is dependent on each other. The Renters provide income to the Investors. The Supporters, very practically, make the deals happen. The Homeowners rely on the Supporters’ expertise to secure their shelter as well.

What it’s like to be a ____ player

There are, of course pros and cons to being certain types of players.

Renters have the flexibility of choice. Within the boundaries of their affordability, Renters dictate to Investors what they want. If there is enough demand driving certain amenities, more Investors will include those features in their value offering. Similarly, if Renters decide they don’t value something as much anymore, Investors will have to pivot their capital to more attractive options. If enough Renters leave a city center during a pandemic for beaches and farms and rural areas, Investors will eventually decrease capital investment in cities and find new short term rental opportunities in more rural areas (ahem, AirBNB and VRBO), for example.

Homeowners might have it toughest. They have the highest volume of regular costs with only their income to repay their shelter expense. People who buy their home for shelter alone are likely not paying for it from rents on other shelters they provide to Renters. Homeowners not only expense monthly debt payments, they also incur capital expenditures, updating costs, and taxes and insurance. Owning your shelter may not be ideal if you’re in an area with exceptionally high property values. Or, you may value the flexibility of being able to move locations every few years…owning your shelter may not be ideal in this instance either.

Supporters come in all sizes and shapes. They’re the ones that keep the business going. They do the cold calls to get Grandma and Grandpa thinking about cashing in on the equity they’ve accumulated over 40 years. They do the property searches and legal process work. They execute on the Homeowners and Investors plans.

The Investors are the most flexible group. They commit capital, much like homeowners, but their repayment structure isn’t reliant on their own income. Investors pay for their properties using other peoples’ money. Very literally, Investors use Renters’ rent for capital expenses, updates, reinvestment, and a risk-adjusted return. Investors are the ones that make coin from real estate, because they are the ones bearing the greatest risk of loss. Homeowners bear risk of loss too, but only to the level of their one property and their ability (or inability) to maintain it. Renters bear no liability because they don’t own the property and are not obligated to update or maintain it. Supporters are more or less hands-off once the deal is done. The Financiers are happy as long as their debt payments are being made.

Consolidation & Conclusion

I consider myself a player in two camps: Investor and Homeowner.

I bought my first shelter as a Homeowner, with the intention of it being my first investment. I’m playing the game like an Investor. I’m not planning on just spending 30 years here, making the monthly mortgage payments. I’m going to get roommates to offset my income. From that extra (offset) income, I’ll then reinvest in the next property. Then the next one. Then the next one.

I don’t consider my shelter as just another living expense. I run my house like it’s a business itself. My house is only an asset if it’s generating a return. It doesn’t generate a return if I’m only playing as a Homeowner and living in it by myself.

There’s flexibility between players, and it’s important to remember the co-dependence between all of them. None can exist without the others.

I hope to provide some level of support/education through documenting my own process. I hope that my story is relatable enough to show others what’s possible.