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What Shark Tank Can Teach You About Real Estate

by Amanda Han on May 15, 2014 · 23 comments

  
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I don’t know about you but one of my favorite shows on TV for the past several years has been none other than ABC’s Shark Tank.

Now I know you may be surprised why my favorite show is not a real estate show like Flip or flop or Flipping San Diego. Don’t get me wrong, I enjoy those shows as well but my all-time favorite is still Shark Tank.

So why Shark Tank? Well, not only do I love the bickering back and forth between the sharks and some of the innovative ideas, my favorite thing about that show is to get inside the minds of the sharks to see how they analyze each deal.

On some deals they see the significant potential for the growth of the company and the eventual sale while others they see it more of as a long term royalty play.

Sometimes the sharks turn down a deal because the distribution channels are too tough while other times they simply pass on a deal because they don’t like the business owner behind it. What’s more interesting is that one shark may see the good in one deal when the rest of the sharks see it as a money hole.

As a real estate investor however, my mind will frequently think about real estate and how I can take what I learn from these sharks to apply to my investment properties.Here are a few connections that I came up with based on my observations. Let me know if you agree with me.

Even though we rarely, if ever, see real estate mentioned in Shark Tank, the ways that Sharks determine the validity of a deal and their decision of whether or not to invest can be applied to real estate.

Related: Do You Have the Mindset to be on Shark Tank?

Investing for Potential Growth

You will often see a business that has a good idea but the business operations are still small. Sharks may invest in these deals if they see ways to significantly grow the business by making minor tweaks to the business operations.

In the real estate world, this is just like value play rental properties. An example would be purchasing a property with “good bones” and by doing cosmetic upgrades such as paint, carpet, and landscaping, you can potentially increase the appeal and thus the rental income of a property.

Same goes for flip properties that need light rehab I suppose.

Long Term Royalty Plays

Often I see a contestant on the show that already has a very established business with good cash flow.

They are seeking funding from the Sharks to fulfill orders or to expand their business. Since the business is already established and operating well, you will often see the Sharks opt for some sort of royalty income. The current return may be smaller than being an equity owner but it is a great way to passively earn money.

I liken these types of deals to passive rentals. Examples may be Class A buildings or triple net commercial property with anchor tenants. In the real estate world, these investment classes are generally large enough where one can afford to have property management in place to take care of the majority of the day to day operations.

You may be paying top dollars rather than buying these at a discount and there may be little built-in equity. The upside of these asset classes are the consistent cash flow and the hassle-free headache side of real estate ownership.

Poor Distribution Channels 

I once watched an episode of Shark Tank where the product was a specialty ice cream that you can personalize.

The sharks seemed to love the product but no one invested in it because the cost to ship the ice cream to consumers priced the product out of the market.

In the real estate world, we see this sometimes with wholesalers. To be a successful at being a wholesaler, you need to be able to work in your prices to ensure that the investor buyer still has room to make some profit on their end.

As with most things in real estate, the art is in the negotiation. Getting the property at the right price under contract is key. Getting something at the wrong price and then attempting to convince the buyer to pay more than what its worth is never a good exit strategy.

Trash vs Treasure

One business idea may be a perfect fit for a shark, almost like a match made in heaven.

Another shark may know nothing about that industry and their lack of expertise or interest in that business may cause issues for the company.On the show, I often see situations where one man’s trash is another man’s treasure.

As a tax advisor, I often have people come to me with real estate deals. I also often speak with clients who have various real estate deals presented to them. The question of “Is this a good deal?” is never an easy one to answer. It depends on so many factors such as property location, appreciation potential, cash flow, cost, and exit strategy to name a few.

A deal that is good for one investor who has enough money to improve and maintain it, may be terrible for another investor who is stretched to the max just to purchase it using high interest loans.

It’s Not Me, Its You

These are some of the funniest parts of the show….when the Sharks turn down a deal by simply telling the business owner that they like the deal, just not the person behind the deal.

Related: The Truth About Real Estate Investing Partnerships

Egos can get hurt in these situations but it is easy to see that investing with someone could be a business marriage and as a result, getting along is key to the success of the business.

For those investing with partners or in syndications or other types of group investing, the “who” is always more important than the “what”.

You can be looking at the best opportunity of the century in real estate, but if the person pitching you the deal is a crook, then you should seriously think twice before putting money into the deal. If you feel the deal sponsor is not honest or open or something is just off, your instincts are probably right.

With all the information easily accessible on the internet, be sure to check out the “who” behind the deals before you put a penny in.

After all, it the people who control the real estate…not the other way around.

What t.v. shows have been inspirational in your real estate career?

Be sure to leave your comments in the comment section below!

 

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{ 23 comments… read them below or add one }

Lisa DuFaux May 15, 2014 at 1:43 pm

Great post, Amanda. I’m also a big Shark Tank fan and never really analyzed all the parallels. I guess it highlights the fact that business is business and no matter how many fancy formulas and principles you follow, a lot of it boils down to common sense!

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Amanda Han May 15, 2014 at 1:45 pm

Spot on Lisa and I completely agree. To me, the most successful investors know and treat their investments just like running a business.

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Giovanni May 15, 2014 at 2:35 pm

Great post Amanda,

One of the things Shark Tank teaches entrepreneurs (or should if they’re paying attention) is how important it is to know the numbers of your deal cold; inside and out, forwards and backwards… without having to look them up on a spreadsheet.

Most really sharp investors like the Sharks have downloaded Excel into their brain and can run your deal numbers on the fly in real time while observing your non-verbals to see if you are worth even talking to. If you start errring, fumbling with papers or scrolling around your laptop guess what the decision will be.

Good hunting-

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Amanda Han May 16, 2014 at 10:25 am

Exactly…I feel the same way too how non verbal cues are so important as you can quickly tell if someone knows their stuff inside out or not.

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John Elmenhe May 15, 2014 at 6:24 pm

I LOVE Shark Tank and my favorite aspect of the show is getting into the minds of great entrepreneurs like Mark Cuban, Lori Greiner, and Daymond John. It’s one thing to just see the numbers, but it’s a totally different game when you can see the big boys and girls crunching them! I also agree with you on the idea that the lessons you can gather can be applied to RE investing (or any business for that matter). You’re killing two birds with one stone~ you get entertainment and an investing/entrepreneurial education all at the same time!

Thanks for the article! I’m definitely bookmarking this :)

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Amanda Han May 16, 2014 at 10:25 am

Thanks John~ Now if only we can find some way to get RE on to the show…

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Gualter Amarelo May 15, 2014 at 7:47 pm

Well Done! I can completely relate to this article and I think my wife will back me up when I say that I see and relate everything in life to my real estate business, LOL, but I can very specifically agree that what they do and what we do are very similar. Mostly because we are all investors. We all have those ah ha moments that got us started and moved us into real estate. The sharks just happened to have them a long time ago and have kept up the momentum ever since! The main difference is where we are in time!

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Tom Sylvester May 16, 2014 at 4:27 am

Amanda – I completely agree, I enjoy Shark Tank more than any real estate show. Those shows are more entertainment by showing the renovations, but less business value because they often don’t go into the early analysis or numbers.

Shark Tank on the other hand does this. You get to hear all of the numbers, and my favorite part (like you mentioned) is seeing how different successful entrepreneurs evaluate the deal. Since I am also evaluating the deal as I hear it, I get to compare and contrast my analysis/style against theirs. It is very eye opening when I would turn a deal down and someone like Mark takes it. It really makes me think about what he saw that I missed.

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Amanda Han May 16, 2014 at 10:26 am

I do that too..some deals that I thought I would never invest in a millionaire years get picked up by the sharks and I wonder what the heck I missed…I guess one man’s trash is another man’s treasure =)

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Jason Andrews May 16, 2014 at 10:05 am

Great article Amanda. Shark Tank is one of my favorite shows as well. Totally agree with the other replies that it is all about the numbers. As a new investor like myself, that’s what I have learned that is most important in real estate investing.

The show really focuses on the mind set of true investors like Cuban and the others. This has been something I really enjoy and have learned from.

If you like this show then check out “The Profit” featuring Marcus Lemonis on CNBC. Doesn’t get much attention like Shark Tank. You can watch most of the shows online if you missed the season. Another good show to teach you about business and how to look at the bottom line is “Bar Rescue” with Jon Taffer.

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Amanda Han May 16, 2014 at 10:52 am

Thanks Jason. I have not heard of The Profit but i will definitely check it out. Yes I am all about the numbers as well…

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Sharon Tzib May 17, 2014 at 9:56 am

Great analogies, Amanda. I love Shark Tank too. My favorite shark is Barbara Corcoran – the real estate madam!!

One thing I often notice is that a shark will turn down a good deal simply because it is not in their area of expertise and they feel that they won’t be able to contribute in a meaningful way – there’s a very key lesson in there for all REI’s. Know what you’re good at and enjoy and then find a niche that will complement that.

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Amanda Han May 19, 2014 at 10:32 am

Totally agree Sharon. I learned a long time ago that as much as I like watching the transformation of flip properties….that is one area that I just dont want to really get into on the investing side personally because that is above my knowledge.

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Brian Burke May 18, 2014 at 4:19 pm

Great article, Amanda! ST is one of my favorite shows too. It’s actually quite realistic as well. A couple of years ago I had the opportunity to present one of my real estate funds to a number of the largest hedge funds in the country, Every time I walked in the room or got on a conference call, it was like my own real-life episode of Shark Tank. I presented to everyone from analysts to the CEOs of these firms, and in almost every case the interaction looked a like what you see on that show. I even got an offer, and in true Shark Tank style, the offer just wasn’t the right deal for me and I didn’t take it.

If you ever plan to present to investors in an effort to raise capital for your business, watching that show should be a required element of your preparation.

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Amanda Han May 19, 2014 at 10:33 am

Agreed Brian. A wonderful way to get into the minds of sophisticated investors and a great learning opportunity. Who says you cant learn from watching TV? haahaa

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Giovanni May 19, 2014 at 11:29 am

+1 @Brian. There’s no such thing as being overprepared.

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Thos May 18, 2014 at 7:50 pm

He’s not so flashy, but Kevin is my favorite shark. He’s always working an angle, and I like his frequent royalty plays. Like any good, long-term investor, he’s focused on cash flow and isn’t afraid to tell “contestants” what’s wrong with their product or business model. He’s no nonsense, and yet somehow funny thanks in no small part to creative editing, I’m sure.

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Amanda Han May 19, 2014 at 10:34 am

Yes Mr Wonderful has got to be one of my favorites as well. I love his random stories.

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Brian Wall May 18, 2014 at 11:53 pm

Great Article Amanda! I watch this show religiously, and try to get my 9 and 12 year olds to watch as well, It is interesting that they now are seeing “good” businesses.

I find myself asking many of the questions the sharks bring up, regarding any business venture I investigate.

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Amanda Han May 19, 2014 at 10:34 am

Wow-yes it is a perfect show for kids…never thought of it that way.

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Shaun May 19, 2014 at 1:57 pm

Love Shark Tank.
For the last couple years it is the only show I actually watch regularly.

Good points relating directly back to real estate investments.
Even without that though most “investors” that are doing more than slowly acquiring a small portfolio of higher end rentals they farm out management of from the start, are full on entrepreneurs. So just seeing how people run their businesses and how they look, or don’t look, polished and professional when talking with investors is fascinating and useful to see.

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margaret smith May 19, 2014 at 2:34 pm

Hi Amanda-
What a fun article! I enjoyed it for the same reason I try not to miss Shark Tank- much to analyze and take home from those presentations and commentaries. I am an inestor of sorts-a hard money lender- ie. I lend money to rehabbers to buy, fix and sell properties, or sometimes to fix and hold. I put in a lot of time in due diligence, understanding first the collateral, then the deal- and finally, the borrower. It can be an uphill battle to get through the application process– Many of the people I talk to want quick and easy money- but hey, y’all, you can’t just hand out money to people just because they want/need/ask for it. I feel like one of the sharks- I had better be very sharp, all the time, or I can get myself into trouble– and that would be a lose/lose for lender AND borrower!

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LaShelle Smith May 29, 2014 at 7:16 pm

Great article and I completely agree! Shark Tank is one of my favorite shows because it shows you the difference between having a job mentality and a business mentality. I like seeing how their minds work and how they make their decisions. Watching them helps me as newbie develop an entrepreneur mindset.

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