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How my Master’s degree in Technology Commercialization Playsout in Real Estate Investing

When I received my M.S. degree in Technology Commercialization (MSTC), the last thing I thought about was goinginto real estate investing. I went from that degree to working for 3 different technology companies; one got bought,one wasn’t a good fit, and one failed. When the economy tanked in 2009, nobody was hiring so I ventured to findsomething else, and that’s where I discovered the ability to make money buying foreclosed homes, improving themand selling them. Given my background as a serial entrepreneur, especially with technology focuses, I’m often askedthe question: why real estate?

The Real Estate IndustryNobody needs to be educated to make money in Real Estate. I’ve never seen an industry with such diversity whereso many people can make money. It doesn’t matter about your race, religion, level of education, speaking skills,presentation or even how smart you are. This, with the onset of of Social Media, I’m doing business with anyone andeveryone. I’m talking real estate strategies with anyone and everyone. We all have the same goal; making money. The one and only golden rule in this business is “Everyone has to win” . You don’t have to know rocket scienceto understand that one.

I’m going to point out a few people that I know doing quite well in real estate, and are as different from me as anyonecould imagine.

First: Juztin William – 20-something tattoo artist that went from being in significant debt to now managing hundreds ofrental properties, rehabbing and flipping houses, and managed to crawl out of that whole without any handouts,without any “student loans”, and still living with the same problems 20-something kids have to deal with. He and Iwould private message for hours on our real estate businesses, and I was honored when he approached me on adeal he didn’t feel qualified to take down. That deal never worked for unrelated reasons, but having that relationshipbetween us, we knew how to take down that deal and where it would be profitable. And yes, we would do that dealtogether, and yes, everyone of us would win.

Next: Nasar Elarbi – another 20-something, or maybe 30-something guy that tore himself out of da ‘hood anddiscovered real estate investing as a way to go. He calls himself a graduate school dropout – his mother was ateacher so he understood the value of education, but much like me, found himself to be “unemployable”. He is asblack as they come, admits to having problems using correct grammar in his writings, yet is able to pay for and takehis father to a super-bowl game from the money he makes as a real estate investor. He volunteers his time going toschools and inspires hope for so many. I’ve known him for years and I tell him to keep doing what he’s doing (In fact Itold him to accept his grammar, that is a part of WHO HE IS, and people are attracted to him because of who he is). He is an inspiration for so many and yet criticizes himself for his spelling or grammar. I just want to shake my head. He is such a success, helps so many others and is a perfect example of how by “being himself”, he hasmastered real estate investing. He has since gone on to help others get into real estate investing. You can readmore about him at http://realestateduru.com.

And More: Stacee Nelson – probably closer to me in demographics in that she is a white female, and so am I, withonly a few decades in age to separate us and our differences in hair colors (she’s liking pink hair these days). She iseducated with an MBA in international business and quit her cushy corporate job in mergers and acquisitions to gointo real estate full time. She knew that is where she meant to be. She is a mover and shaker and won’t take no for

an answer. Her learning about real estate was insatiable. She started with flipping houses, then got into somecommercial deals, examined note investing and finally found her sweet spot in buying properties in bulk. Now flippingsome 30 houses a quarter, she has leveraged her education in finance and international business to deal with someof the largest bulk buying groups in the country. She has surpassed me in bringing her expertise in new industriesand still has the passion for real estate. (If I didn’t know her personally, I may be a little intimidated by her.) And she agirl that likes to have fun!

All I can say is KUDOS to those that have entered into this industry where education, race, color, and gender doesn’tmatter. These examples are just some of the incredible people I have met on my real estate journey. I have neverknown an industry that enjoys such diversity and the potential to make money is there for everyone.

Mapping a Technology Commercialization Degree to Real Estate

Raising Funds

The year long Master’s program focuses on finding a technology and developing a business plan around thetechnology. Many know that a few technology companies are bought for many times their annual revenues, yet mosttechnology companies fail. The failures have to do with a multitude of issues, all studied in the program so we allknow what to expect, how to avoid getting caught in those positions and therefore have in the business plancontingencies on how to handle these unsuspecting surprises. But the main focus is to end the year with a venturepresentation competition viewed by Investors in order to raise money for the technology venture.

Raising money in Real Estate is no different. And yes, I use other people’s money in Real Estate. I use the tools andthe strategies to make a compelling presentations, outlining the problem in the markets, the opportunity it presentsand the expected return and the timeline. I share my stories, right here in this blog, to authenticity speak to the realityof this business and prove to potential investors that I am a credible source to handle their funds.

Is commercializing a technology risky? YOU BET! Is real estate investing risky? ABSOLUTELY! Do I know how toprotect potential investors rather it being in real estate or starting a new technology platform? YES.

Communicating So They “Get-it”

Being a former geek, computer programmer, etc., I had little patience for those that “sucked up” in the corporatecommunity. My work was solid and I didn’t have to play any games or do any manipulating to get the job done. Therefore I didn’t communicate much. Being opened to this new world of identifying pain points in the market,viewing those as business opportunities and teaching me to learn how to develop a business based on solving thatpain point was a real eye opener.

Part of marketing is more than understanding the “pain point” in the market, but being able to communicate that painpoint to others that aren’t aware it exists. I always remember the marketing professor with her comment, and it’singrained in me today: If the person you’re speaking to doesn’t understand the message, there is something wrongwith they way YOU say it.

As a geek, I remember thinking that if they didn’t understand what I said, there was something wrong with them not tounderstand. The reality is I always have to make my message very clear, so the recipient always understands theopportunity. If they don’t “get-it”, then it’s because of the way I said it. I continue to work on my messaging everysingle day.

Being Held Hostage

The Strategy class was probably my favorite. There are a ton of different ways you can be “held hostage” inbusiness. This means pretty much running out of resources so you can make the right decision for your business, but

are forced to make a decision that could cost your entire business, or lead you down a less desirable path you neverexpected. Many that start in the science industries are probably most at risk since their future depends on majorgovernment authorities approval of your product. Sometimes companies find themselves “held hostage” because onesupplier is out of a part and they must turn to other suppliers that provide less quality and/or higher priced materials. They must make the decision to operate with a lower quality product that has a higher price, or eliminating productsales until the problem is solved – thus reeking havoc amongst employees expecting a paycheck, etc.

I’ve seen this in real estate too. Not so much about the lender that drags their feet on approving your new buyer, thuscosting you more money, but with investors not understanding a delicate situation and refusing to fund what is neededto get a project profitable. Yes it happens, and I’ve had to make it very clear that I was being “held hostage” andforced to make decisions for the best purpose of the project. It was costly, but we got through it and there wasdamage to the relationship with that investor. It happens.

Risk Analysis

What a fascinating class. It was filled with super analysis tools that allowed us to analyze the “what-if” scenarios onvery complicated decisions and how it impacts a company with multiple moving parts. I wish I had more access tothose types of tools to help in my presentations to investors, as I have a lot of great ideas for leveraging opportunitiesI see in real estate. I don’t have the tools, and haven’t really explored the opportunities mainly because it was loweron my priority list, but when the hedge funds inundated the tax lien market, I knew EXACTLY what they were doingand how they knew they could take the risks of purchasing tax lien certificates even if the property was a dud.

Here’s a little background. I had great luck purchasing tax lien certificates in Florida earning 17.5%-18% interest and Ididn’t lose any money. I blogged about that time HERE, and even was mentioned on a CNN Money article HEREwhen the tax lien certificate opportunities were taken over by the hedge funds.

Someone was able to use a complicated risk management analysis tool to penetrate the Florida Tax Lien system andthey knew how they could do it with a profit. Where individual investors like you and I would analyze each propertywe bid on to make sure we didn’t suffer a loss, the hedge fund gathered the statistics necessary where they knewwhere to bid and that by bidding a mere half a percent on each property, their chances of being profitable weregreater than not.

Here’s how they knew this business model would work: Florida has a minimum 5% penalty to tax payers who don’tpay their taxes on time. The hedge funds win the certificate because they claim they will accept the lowest possiblebid at the open auction. They win the certificate and they also know what percentage of the certificates are redeemedwithin the first month or 2 of the certificate being issued. I don’t know what that percentage is, but in my experience,most of the certificates were paid within the first few months. So IF a certificate earns a 5% penalty and thecertificate is redeemed in the first month after the certificate sale, the yield rates a, impressive 60% annualized. Sure,they get 5% of their investment back within a month, which is not too bad these days, but to do it over and over can bevery lucrative.

So if these hedge funds could earn a pro-forma annualized yield of 60%, what about the properties they bid on thathave outrageous liens or for whatever reason can’t be redeemed? That would be a total loss of their investment. Someone was able to statistically prove that bidding low on as many tax certificates as possible would prove moreprofitable and the risk less because they would merely abandon the certificates that never paid. There is noresponsibility in buying a tax lien. True, if the lien is never paid, they may end up with the property, but they don’t wantit and will let it get absorbed by the County.

This is a complicated investing strategy. But I totally understand their process in determining that it would beprofitable, and it has proven to be profitable because they have been doing this every year since. Yep, risk analysis.

Validation

If there is one thing that came out of the MSTC degree was the need to validate…EVERYTHING. From the educationperspective, just because YOU may think you have a good idea for a business, or your investor friend created somewonderful invention he calls his “baby” doesn’t mean it will sell in the marketplace. Besides all the issues that cancome up, such as copy-cats, ease of exiting the market, ensuring the market is ready for that “baby”, we don’t reallyknow that something is valid until we test the market. And in real estate I validate constantly.

So many new real estate investors come to me with statements like:

My agent told me I couldn’t do that – it was illegal

The Wholesaler said the property was worth a MILLION DOLLARS!

Asbestos Siding? OMG – I’m going to run away!

Nobody would lend on my project

My agent knows her current market. She knows what sells and she knows what doesn’t sell. After years of workingwith her I know to believe her. But in the beginning I validated everything she said, and most of the time she wasright.

I’ve had agents tell me lies about the way the transaction process works in real estate to put pressure on me to closea sale, and I know they are lies because I validated it. All of it. Contractors will tell me what I need to do to be codecompliant (and have it cost me more money), but if it’s a really surprise, I’ll read the code myself. This mindset ofvalidation has saved me a lot of money. Never let one person stop you from moving forward in your businessbecause they said “you can’t do that”.

Understanding motivators will also give you enough knowledge to know how deeply you want to validate an issue. Forexample, contractors don’t care how long the project takes, they are getting paid and that’s all that matters to them. Agents don’t get paid until the property is sold, and even if it has to sell for less so they can get paid sooner, that’swhat they will do. Their motivation is to get paid quickly, not necessarily maximizing their check. I have found that byunderstanding their motivations you can learn if in fact you need to validate what they say. I wrote a little ebook “The5 Styles of Contractors and How to Manage Them” some time ago when I realized the motivations behind thedifferent contractors. Understanding who you are dealing with in business, what motivates them gives you theinformation you need to make smart decisions.

Multiple Exit Strategies

Much like technology companies hoping to be bought by some bigger company for multiple times earning potential,you always want to remain open to alternative strategies for your exit. Of course the worst exit strategy is businessfailure, which happens all too often, both in real estate and in technology. But if you are stuck on only one exitstrategy you may find yourself in a losing situation.

For example, let’s say you start a company with the intent to sell it to a big company at some later date. Everythingyou do is to groom and build your company to be best aligned with that company. You introduce the product, youmarket it, you start getting sales, you get the attention of the press, but then the big company you had hoped wouldbuy your company creates their own competing product. You had your heart set on this strategy and now it’s notthere for you. How do you handle that? What if you had to sell your company to a company that was going to shutdown your business, only to keep the employees they like and spit out the rest?

The same is true with investing in Real Estate. I really feel sorry now for the people that ran to west Texas to buildthese “man-camps” in the middle of nowhere so they could house the people working in the oil industry. Sure the oilcompanies were paying a lot of money for their “per-diems” – living expenses while they were in the oil field. Theprofit projections were incredible. But suddenly the price of oil went down and the oil companies stopped producingoil. Those properties are worthless right now. Well, not worthless, but certainly not worth holding onto, making

mortgage payments and paying taxes on something that doesn’t provide an income. Sure, it may come back someday, but these people are caught with no other exit strategy. None.

So too in real estate, if you buy a property to fix it up to sell, and then you can’t sell it, you are stuck. Being open toother strategies is critical to your success. Learning about the other strategies are critical. Thats where we came upwith “owner finance”, “lease options”, refinance and rent, or if all else fails, lower the price to bargain basement or dowhat some have done: hide their head in the sand.

Financial Analysis

When I started in the real estate business I started with a spreadsheet outlining the goals for my purchases, puttingtimelines on those goals, identifying when they would sell and leveraging profits to reinvest to grow the business. While impressive to some of the other students – that I could map out such a plan – the message I got from thatexercise about real estate vs technology commercialization is: The value of a real estate business is 1 times it’scurrent value. All the time. No exceptions. Where as technology companies are often sold for multiple times of theircurrent values.

Final Analysis

Many of those real estate “guru’s” claim you don’t need a formal education. And that is true, you don’t need aneducation to make money in real estate as many of my diverse real estate friends prove. The common threads I’vefound are with those successful:

knowing the game

persistence

alternative thinking

understanding risks

understanding market demands

knowing when the market changes and being adaptable to that change

building relationships

leveraging funds

being flexible when dealing with unexpected events and most of all:

the ability to look at your mistakes as learning experiences.

Watch for Jean’s new course: Business 101 for Real Estate InvestorsTo learn more about the Masters of Science in Technology Commercialization at the University of Texas at Austin,CLICK HERE

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