Does an MBA Help in Real Estate Investing? with David Kamara
David. Thank you for joining us today.
Thank you very much. Glad to be on your show.
I’m really excited to continue our conversation here. We’ve been talking for half an hour already for our listeners out there who don’t know about you and you, your background. Can you tell us a bit about yourself and what you do?
Okay. Sure. So my company is called Cape Sierra capital. We invest in BNC class assets, mostly in the Midwest, but also. I came to this I guess business through being a management consultant and traveling so much that my wife and I had to have a conversation about how do we get me home a bit more.
And I was fortunate enough that the business I was running in management consulting. We had enough capital to go buy a few apartment buildings for ourselves. So we did that and I was very excited. I was telling everybody about it. And what happened is a lot of my ex-management consulting colleagues and clients started asking me, Hey, why don’t we invest that money with you?
And at first, I ignored that a bit. I said, I really am not looking to make this a business kind of just focused on my own investments, but then enough people came out and asked this question that we had to take it seriously. And we essentially started investing with people that wanted to invest alongside us.
So we today invest our money in every deal alongside investors. And again, we focus on cash flow. We like the upside from long-term appreciation. And that’s in a nutshell what we do. Awesome.
I love it. So we were talking and I wanted to really dig into the idea of whether an MBA is helpful for real estate investing and your experience, painting your MBA, and all of that.
You went to a very prominent business school. Can you tell us about, your background and going and getting your MBA and all of that, and we’ll dig more.
Sure. So my undergrad is in computer science from the University of Michigan. I actually wanted to become a doctor when I came to this country.
So I’m an immigrant from Sierra Leone and Ukraine, my mother’s from Ukraine, and my dad’s from Sierra Leon. When I came my dad is a doctor in Sierra Leone and I assisted my dad in surgeries back in Sierra, Leon. Wow. The idea was to come to the states and be a doctor. However, I quickly found out that it’s quite expensive to do and as a foreign student, you often don’t have access to loans to go to med school. So the next best thing or next fun thing that I was good at was math. And so I picked computer science and this was just around the turn of the century, early two thousand. And all the startups were having a lot of success.
So I picked him, get a science moved to Chicago after graduation. Got a few offers in Silicon Valley, but my wife’s from the Midwest and we were dating at the time we were planning our wedding. So I thought it’d be too far away. Don’t regret the decision at all. We moved to Chicago and I really was interested in going to business school.
Like I, I was always interested in business as a kid. I sold drinks and all kinds of other little tiny businesses that I did. And I ended up going to Chicago University, Chicago Chicago booth. The question about whether the degree is helpful in real estate. I think as a matter of what you make it, right?
So I think there are a ton of lessons you’ll learn in business school that are very applicable, right? How to look at a financial statement, income statement, balance sheet cash flow statement general accounting principles of general business strategy. I think I have been extremely helpful, but I would say if you scanned the landscape.
Successful in real estate investors. Very, I wouldn’t say very few, but not all of them have MBAs. And a ton of people who’ve been successful in this business. So do you need one? I don’t think you do. I’m definitely very grateful for the knowledge I learned and the people I’ve met. And frankly, I would say the network of people that I’ve met through business school and through my consultant career since has definitely helped my real estate investing business because a lot of our investors come from that.
Okay. Okay. And for your specific background and your story, your journey of getting into real estate, it sounds like real estate was really. And escape from traveling and being away, a hundred hours a week or whatever amount of time it ended up being. Do you think if maybe you had a career where you weren’t traveling all the time, you’re just commuting to the office?
Do you think you would have gotten into real estate or would you maybe have not had a, I dunno felt the obligation or the need to build that income on the side to travel less.
That’s a that’s an interesting question. So we started investing in real estate, my wife and I very shortly after about a first house, a personal residence. And I think for me, it was more the revelation that in the United States, you can buy a house with so much leverage. So we bought a personal house. We just graduated college would probably be a year or two out of school. And, I think at the time you put down five to 10% right.
To buy a personal residence. And it was just mind-boggling to me. Cause in Ukraine, you can’t do that. And Sheridan, you surely can’t do that, but if you’re buying something, you’re buying cash. And I think I read it and I read that. I think I read a bunch of real estate books at that time and I got very excited about it.
So I convinced my wife that we should buy a few more things and we’d bought some duplexes on. And then life happened and we have kids and ended up moving back to Michigan from Illinois. So back to your question, we started investing in real estate because we, I guess I have that entrepreneurial spirit and it made sense.
But I think what really accelerated it is definitely the fact that I was not spending as much time with people. I love. As much as I want to do. So we had at the time, so we had two kids when we moved to Michigan, we have two more. So we have four daughters and yeah, I was traveling a ton.
I was away from home a ton. And it’s just very difficult in terms of scheduling, but also just not seeing your kids grow up. There are definitely milestones that you will be missing if you’re so involved in your corporate work. Particularly mine was a lot of travel. I traveled Mondays through Thursdays, most.
And so I don’t regret the path that got me here. Would it have ended up differently? Had I not been traveling as much? Very possibly. I think that’s the best answer I have at this point,
but it’s a very philosophical question, right? We can never know what would have happened, but, okay.
So you went to a Chicago booth, which I haven’t looked at the rankings in years because I haven’t thought about these things in years, but that’s one of the top handful of schools, in the world business schools, in the world. What are your thoughts about it? Whether it’s worth going to a less highly ranked will program, would it be, would it makes sense to do, especially if one has one’s eye on becoming a real estate investor rather than, furthering a corporate career.
Sure. So yes, I think. Okay. So it depends on if you’re paying for this yourself, right? Sometimes we work in corporate roles where you employ help, or if you have a means to get a scholarship, to go to these programs the knowledge I think is very well worth it. The difficulty with MBA programs, in general, is that there’s not a set syllabus, right?
A set of classes that, you will take when you get into business school and it’s the same across every school. So like med school, where you take all the same basics the business school is more of what you make of it and what classes interest you. There are some prerequisite traders like econ 1 0 1 and some statistics courses and some finance courses.
But beyond that, you’re really picking a variety of electives. I think if you’re definitely looking to. For their corporate career. My perspective is you have to go to a top 20 program because definitely, programs have great professors have great recruiting, which will get you into very top companies for the most part and a bit less.
So in the top 20 programs, if you’re looking to just go for knowledge, to further your personal quest, for knowledge and interest in business, I think. You can learn that stuff in any program, but you can also learn a lot of that on your own as well. And again, I pointed back to people that have been successful in real estate that don’t have an MBA degree.
You don’t have to be an accountant, right? You often will hire accountants to do accounting for you or a tax preparer to help you with tax strategy or a tax form. But my experience, I really treasure quite a bit. I felt great. People had very good professors, a lot of whom I still keep in contact with.
So I guess that’s my answer to that question.
Okay. So it sounds like kind of what I’m gathering here is for your specific situation, some of the biggest value as it pertains to your real estate portfolio. Now, the value that you got out of that program was. Increased your earnings as a professional.
So you had plenty of capital to invest in your portfolio in the first place then as you scaled by accident other colleagues were coming to you saying, Hey, could you invest my money for me? You didn’t want to do it at first. And then you started doing it and it ended up making a lot of sense to do, but maybe from, an academic standpoint, It wasn’t necessary.
If you will, it was more access to capital either from your own earnings or your network. Would you agree with that? Or do you want to, would you clarify that?
Yeah, I do agree with that. I think to use an economic term, the externality was having this massive network of high earning people that know you have gone through similar experiences as you, you belong to the alumni network.
And then for. And my consulting career since business school, having again, a lot of hype, high net worth individuals that I know and have come to that cross paths crossed paths with, excuse me including my client’s ex-colleagues that was extremely helpful. And as you mentioned as a management consultant, you’re highly compensated, right?
I was able to be in a place where we had substantial assets that we could invest to go buy our own deals would treat which opened up to other people as well. So yes,
you’re exactly correct. Okay. And I want to, maybe turn the lens toward our listener out there. Who’s maybe a busy professional in a career, they’re earning good money now, but they don’t have an MBA and they know they want to invest in real estate.
Would you say it makes sense to invest in an MBA specifically with the vision of building one’s real estate portfolio mining that a decent MBA can be well over a hundred thousand dollars, not even counting? Lost salary by the time that you allocate to it, whether you go full time or at night, what are your thoughts about that?
Would it make more sense to just bill for it and build the real estate portfolio or go get the MBA?
Yeah. So again, they’re hypothetical questions. I think it depends, so I guess let’s take a step back. If you’re looking to build a real estate portfolio, I think you will need a couple of things, right?
You need. You need to be good with numbers, right? And some people don’t need an MBA or you really don’t need an MBA to be good with numbers. You can understand those. It’s not a very complex business. So one of the great things about real estate is it’s actually a pretty simple business, right?
Relative to most of the businesses that I helped or we work on and mantle, consult. This is fairly straightforward, right? There are rents there are expenses and then there’s the market and then there’s debt. So those numbers are easy to understand. So you don’t need an MBA for that. I think the other thing that you would need if you’re looking to invest with people or start your own syndication business or whatever it is that you’re looking to do is you need access to capital.
Right? And a lot of. Computer science classmates, for me to Western Michigan ended up in Silicon Valley and by nature of being there or ended up in some startups somewhere mostly tech startups by nature of being in those kinds of businesses, they have access to a network of people that again, have a lot of money and love their day-to-day job, but have excess cash to invest.
So if you have that kind of a net. Or a network similar to that. I don’t think you need to go get an MBA. You can find the knowledge of what’s taught in those programs yourself. However, the alternative is you go do that. Yes. It’s there’s enough trade to cost to the money. And potentially if you go full time, you’re taking two years out of your professional life to do but there’s there an additional benefit of the network and the people you’ll have. Those relationships are formed for years in a lifetime. So it’s not a clear cut. I think it’s not a very clear path as to which we make sense. I think it depends on where you are today. What what does your network of people or your professional network or your friend’s network look like and how much do people know and trust you right.
To give you. Substantial sums of money to go invest in real estate. So really those would be the questions I’d asked and you can do either path and be successful, I guess that is my point.
Okay. Okay. But on the, if you’re somebody says you’re somebody who only wants to invest your own capital, you want to go buy duplexes or something like that.
And, for your own account, then your network for capital sources, things like. Might not be quite as necessary. So it may lean towards making less sense. I don’t know. I just want to dig into that a little more. What do you think? I’m sorry.
Could you ask that again?
Sure. So maybe this is a.
If you’re a busy professional who has capital, you want to invest you don’t have ambitions of building a syndication company where you’re going to be raising capital from passive investors potentially. Then it would probably make less sense, to go get the MBA. I suppose if I’m reading into your…
So his prepayment penalty became because of what had happened. Was about a half-million dollars. And so he was banking on the tenure T not rising some, not all the way, but at least some so that he would pay a bit less of the prepare. If I worked here of delaying the loan by virtue of delaying the sale, he was trying to minimize his cash outflow and actually keeping more money in his pocket.
So we, at that point said, sure. W we actually put in the loan contract that we wouldn’t sell until we’re going to buy into. I think it was November at the time, but then we went back and looked at our loan sources and said, what can we do creatively to minimize the high-interest rate? Because again, it’s COVID and everyone’s freaking out about what’s going to happen to the world.
And is this, is anyone going to pay rent? So stumbled on this HUD product, which is a very good product. It’s a fixed rate for 35 years type. The downside is you can’t well, you can, but the prepayment structure, the base prepayment truck trade is it’s a 10-year old and it’s stepped down 1%.
If your prepayment starts at 10% in year one and goes to zero in year 10. And then we had to go and see if investors were interested in a 10-year-old, right? And some people are very open to it because the property is going to cash flow very nicely, but others were a bit more skeptical. And they said we love the deal.
10 years is a long time to hold the property. So we’re not going to invest. Long story short, we did the deal and HUD loans take longer why people don’t use them as they’re very thorough, right? So they go through the property in tremendous detail, far greater than a Fannie or Freddie type loan would do.
Does an MBA Help in Real Estate Investing? with David Kamara
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And they come up with these requirements that the seller needs to fulfill. In this case, the seller was open to all that, because again, for him the later he closed, the better. And the 10-year treasury actually ended up going up quite nicely, by the time we closed. So he benefited from that and we benefited from a great interest rate.
So we were on the HUD loan at the time, the program has changed since, but you can get a reduction in interest rate based on whether the building qualifies for green certification, meaning it’s energy-efficient and all that. So we actually got an interest rate of all in 2.4, 6% on that loan.
And it’s been fixed for 35 years. You’re practically a biggie being given money, right? If you think about what inflation is and what that interest rate is. Essentially we’re getting that capital to do the deal for free, right? Because I think the latest January year-on-year CPI inflation index number was like 7%.
So you’re essentially being given cash to go do a deal. So what that great. Everyone’s very happy that the property is performing extremely well. We distributed a 10% cash on cash return, where we promised like a seven and a half. And everyone’s super happy that those loan products are mostly not used primarily because it takes a long time to close the loan, right?
And most sellers want to close much quicker. Now you can use a bridge product with something like that, where you can do a bridge, close the loan, and then go do your HUD loan. Again, the question is. If you have investors in that deal, are they willing to hold for a long period of time? Or what kind of a prepayment structure do you need to negotiate at close?
Awesome. I’m glad we got to dig into that. There’s a close time. And then there are also those prepayment penalties that can be huge, especially when the interest rates have fallen so significantly. And I have spoken with people who have gotten seriously burned by not understanding prepayment penalties when they first got the loans.
Typically I’ve found. Folks get those notes. If they understand how the prepayment penalties work and the dynamics and everything, they’re more prepared to deal with that situation when it comes about, but they don’t understand it in the first place. And you come a few years down the road, interest rates drop, and you didn’t know that you were going to have this potential.
You can get in some really some hot water if you don’t know what you’re getting into, but you knew what you’re getting into. So it’s not a troubling situation.
I think you do have to get educated on that, right? Because I have two loans on very similar properties taken around the same time in one of them.
I basically have a step-down prepayment. And so three years out, it’s a 1% prepayment fellowship, which, it’s pretty good on another one. And again, these loans were taken out in the 2018 ish timeframe. So at the time, you talked to any banker, its rates were at 5%, this is super low. Like rates can’t go any lower.
So on one of them, I have, like I said a fixed rate prepay where I know what that rate is on the other one, I had yield maintenance and of course, the thought was if rates go up and you have your maintenance, you’ll be fine while rates go up. So on one, just refinance this thing. It was like $70,000 a week.
The pellets you on one, on the other ones, like a $9,000 prepayment penalty. So it was very different and you have to understand what those are. And sometimes it’s tough to predict the future and rates with rates. You have to take a stance on which way you think they’re going. Yeah, you definitely need to understand how those work.
Totally. I love it right now. We’re going to take a quick break for ours. All right, David, I’ve got three questions. I ask every guest on the show. Are you ready? Great. First one. What is the best investment you ever made other than in your education?
Yeah, one of those, one of those refinance that one of those refinances deals that I just talked about.
As long as you're selling your time for money, you're somewhat limited.
My broker brought this deal to me, which he found on the. MLS was at 37 unit deal. I’m just listed on the MLS, I think it was 1.1 million at the time. It was an old high school that was converted to apartments. So it was very unique. Every property and every unit was different because there was a classroom essentially that was retrofitted to be an apartment.
It’s a very neat building. We ended up buying that deal for about $850,000.
Three years later, we just refinanced it for about 1.7, $5 million. So that was by far, in a way, the best deal so far in that, just again, if you think about it $850,000 with leverage and the return on that money, it was just very significant. There was just really through. Doing the right things, right?
Investing in, cleaning up the property, getting better tenants upgrading some kitchens, bathrooms, doing landscaping. We had to do a roof. But that was a really great investment for us.
Nice. I love that. We had the best investment. Now we go to the other side of that coin, the worst investment.
What is the worst investment you ever made?
So none of our investments. Disastrous by any means. But one of the first duplexes we bought was in Gary Indiana guaranteeing Ana is a somewhat blighted area. I think at some point had a reputation for being most interested in the U S et cetera. The investment actually worked out well, but the thing that.
Learn from that was so that property paid itself off and whatever 10 years or so. It was a duplex. My tenants, I think I still had the same tenants when I bought it when I sold it. It was just not a property that would ever appreciate. So I bought it for cash flow and it paid itself off.
But it wasn’t a place that when I went there, My wife was very happy. I was like, Hey, here, you need to make sure you don’t get shot in that neighborhood. So it was one of those where you are trying to do the right things for the tenants. And in some cases, people just, can’t help themselves, right?
Like you show up, try to like, I remember very well distinctly. I went there when one Monday morning I took the later shift at the time at work and everybody’s home. There are three TVs on, and nobody’s at work. And it’s like, what’s going on here? Everyone is. Not trying too hard. I know that there are many underlying issues socioeconomically where some people can’t get work, but in this case, this was pre-pandemic and people could still get work.
So it was one of those disappointing kinds of feelings of I’m trying to, I’m trying to raise the level of living here and it’s just not seeming to be appreciated. So the investment itself worked out well, but the lesson for me was you can’t change the name. It’s really tough to have properties in neighborhoods like that.
And financially worked out. Okay. It was just a big lesson that, that’s very tough to do. And there’s more needed there, more governmental support or some kind of programs to improve people’s lives.
Interesting. Okay. Okay. My favorite question here at the end of the show is what is the most important lesson you’ve learned in business and investing?
I think we talked about this briefly before we started recording. I think my revelation or my, the thing that kind of spurred triggered my, trying to get out of corporate and into more real estate is really trying to. Income passively. I think we see a lot of these high-income earners, right?
Whether it’s, Superbowl athletes or performers and really, highly paid professionals, which is what I was right. And I think the revelation for me is you’re selling your time for money. And as, as long as you keep on doing that, you’re somewhat limited, there’s only so much time.
And. I mean to my kids and younger folks. My advice is to try to start some kind of a business where you eventually don’t have to be a part of it, right? Where you, that there’s a product business or a service business with other people can keep driving it. Or the idea has value in itself and you collect rents, right?
Whether that’s. Royalties from music or whatever, or trends from physical apartment buildings. You want to get into some kind of a passive cash flow situation because then you’re making, you’re essentially making whatever money you earn as a highly paid professional work for you. And at some point you can stop trading your hours for those dollars and just have the capital you invest generate dollars for you, it just gives you a ton of freedom to go explore. Whatever it is. You’re interested in intellectually philanthropically really, whatever you need if you’re still wanting to go run a business or build something, you have the latitude to do and really, I’m very thankful how things are worked out personally, in that I found this space and I’m just very grateful.
I love that. David, thank you so much for joining us today and sharing all these lessons, and helping us explore the topic of whether an MBA is helpful in real estate is something I’ve wanted to discuss for quite a while. If folks want to reach out, if they want to get in touch with you, if they want to learn more about the real estate deals you’re doing, or anything else, where can they track you down?
Yeah. You can find me on our website. Which is capesierracapital.com and while you’re there, you can check out a free ebook, which is the personal cash flow formula and that’s at capesierracapital.com/cashflow.
Awesome. Thank you once again for joining us today to everybody out there.
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Does an MBA Help in Real Estate Investing?
About our Guest
David Kamara
David has been a real estate investor since buying his first duplex in 2006. Over time he has transformed the portfolio from residential, single-family and duplex units to focus on larger multi family investing including apartment buildings and townhouse communities.
When David is not looking for the next investment opportunity he is a successful management consultant and highly sought after advisor to C-suite executives and private equity investors. He has held a number of interim CIO and COO roles and has been involved in over 50 private equity, corporate and strategic transactions.
David received his MBA from the University of Chicago Booth School of Business. He holds a Master of Liberal Arts degree from the University of Chicago and a Bachelor of Science in Computer Science from the University of Michigan, Ann Arbor. David speaks five languages.
Episode Show Notes
David has been a real estate investor since buying his first duplex in 2006. Over time he has transformed the portfolio from residential, single-family and duplex units to focus on larger multi family investing including apartment buildings and townhouse communities.
When David is not looking for the next investment opportunity he is a successful management consultant and highly sought after advisor to C-suite executives and private equity investors. He has held a number of interim CIO and COO roles and has been involved in over 50 private equity, corporate and strategic transactions.
David received his MBA from the University of Chicago Booth School of Business. He holds a Master of Liberal Arts degree from the University of Chicago and a Bachelor of Science in Computer Science from the University of Michigan, Ann Arbor. David speaks five languages.
[00:01 – 09:19] Opening Segment
- Get to know David Kamara
- David shares the story of how he got into the real estate investing space
- David’s life after coming from Sierra Leon
- Networking in Business School
[09:20 – 19:03] Should You Invest in an MBA?
- Other opportunities versus real estate for David and his wife
- What Made David leave his corporate career
- Things You Have to Know About Business Schools to Get the Best Out of It
- How MBA Gives You an Edge Above Others
[19:04 – 32:24] Keeping Your REI Reputation
- Looking at MBA in an economic sense
- The future of the real estate space
- Real estate is a reputation business and you want to deliver
- David shares about a deal where he had to use leverage
[31:11 – 40:56] Closing Segment
- Quick break for our sponsors
- The first step to growing your wealth is tracking your wealth, income spending and everything else about your finances, you can start tracking your wealth for free and get six free months of wealth advisor. Learn more about Personal Capital at www.escapingwallstreet.com
- What is the best investment you’ve ever made other than your education?
- Old high school turned apartment for $850,00
- David’s worst investment
- First duplexes in Indiana
Connect with David Kamara through https://capesierracapital.com/ and check out The Personal Cash Flow Formula.
Invest passively in multiple commercial real estate assets such as apartments, self storage, medical facilities, hotels and more through https://www.passivewealthstrategy.com/crowdstreet/
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Tweetable Quotes:
“There is a ton of lessons that you can learn in business school but I don’t think you need an MBA.” – David Kamara
“Business school is more of what you make it.” – David Kamara
“Sometimes it’s tough to predict the future. And with rates, you have to take a stance with where they’re going.” – David Kamara
