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.
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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.
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!