BiggerPockets Real Estate Podcast - 338: From Red Robin Waiter to 250 Units (Using the MLS!) with James Dainard

Episode Date: July 11, 2019

From waiting tables to scaling up to 250 units! Today’s show is going to blow your mind. Brandon and David sit down with James Dainard, a real estate investor in the Seattle area, who is using his broad knowledge of real estate investing to do some big things! James shares how he got started door-knocking for someone else’s company to learn the business—and things took off from there! He also shares how he’s finding 60 percent of his deals from the MLS, how he uses local zoning knowledge to find opportunities others are missing, and how he made over a million dollars off an MLS flip! James has some GREAT strategies he uses, including combining flipping, wholesaling, and BRRRRing; improving the return on his equity; and “inventing returns." You’ll also be blown away at how he created a 60-room rental (!!!) property that earns over $9K a month and how he saves money on maintenance and property management by running it all in-house. James is a smart, humble, and experienced investor doing some very impressive stuff. Download this one today! In This Episode We Cover: How he got started door-knocking for someone else’s company Story behind his first deal How he bought a 60-room house How he got to over 200 units all single-family Combining wholesaling, flipping, and BRRRR What he looks for in an area and using zoning knowledge to find opportunity Profiting $1 million on a flip he found on the MLS About his apartment complex that was on the market for 200+ days How he uses flips to fund his rentals Getting 60% of his deals off the MLS How he calculates the return on his equity Why he hires people in-house to manage properties and do maintenance How he BRRRRed a deal with no money left in that cash flowed $2K a month His unique method for “inventing” returns And SO much more! Links from the Show BiggerPockets Forums BiggerPockets Premium Forum Thread about BiggerPockets Premium BiggerPockets Youtube Page BiggerPockets Podcast 302: Making $100k/Deal Using Other People’s Money, Time & Experience with Cory Nemoto Brandon's Instagram David's Instagram Learn more about your ad choices. Visit megaphone.fm/adchoices

This is the Bigger Pockets podcast show 338. And then as a first time, Flipper, the most important thing I can tell you is don't spend your profits. Save your profit. It's really easy to get your first check and just blow it. Save it because then you don't have to bring in those equity partners. It saves you so much money down the road. You're listening to Bigger Pockets Radio, simplifying real estate for investors large and small. If you're here looking to learn about real estate investing, without all the hype, you're in the right place.

Stay tuned and be sure to join the millions of others who have benefited from biggerpockets.com. Your home for real estate investing online. What's going on, everyone? This is Brandon, host of the Bigger Pockets podcast here with the co-host, the or the David Green. What's up, buddy? Not much, man, just another beautiful day in California, slaying in homes and building wealth. How's it going over there? It's good.

I woke up this morning. grab my phone. I got a text message from a guy named David Green standing in front of a mirror with some giant guns. These guns. I knew this was coming.

I mean, these things are like, these are like illegal in 40 states. Like, yeah, you know, you're looking good, buddy. I'm a police officer so we can get access to permits that other people can't get. Thank goodness. Yeah. So for those who don't know and don't think that I just wake up in the morning

and send selfie gym pictures, to everyone I know. Brandon and I have recently discussed how he started lifting weights, which I think is awesome because Brandon's last a ton of weight. He did a triathlon with like eight weeks of preparation. He's kind of insane. It makes no sense when you look at this man, the kind of athletic specimen that he really is. So now that he's interested in lifting weights, I'm like, dude, now we're going to move to Hawaii so that we can work out all the time. This is going to be another element, another dimension to our friendship, which side note, we talk about three dimensional investing in today's show, which is really cool.

So now I'm trying to encourage him like, look, like you could have this. If you keep going, you too could look like me. Oh, wow. Someday, someday. That is funny. Anyway, no, you've been, you've got some guns. That's good. Today's show, speaking of today's show,

we do talk a lot about something I call 3D real estate investing. It basically is this idea of being able to find deals. Okay, not find deals, but make deals. We talk about this all the time about today's market. You don't find deals. You got to make deals. And our guest today is James Dainard. and this guy is probably one of the most, if not the most creative, 3D, make a deal happen

investors we've ever had on the show. Like his, it's like story after story of where he took deals. In fact, he even says at one point, 60% of his deals, like 60% of his deals come from the MLS. Yet he's able to turn these massive profits. I mean, like one of his stories, he talks about how he made over a million dollars on a house flip, on a deal, like on his own house flip, on a deal that like he didn't even like the house was on the market for like a year. bought it up the MLS after being in the market for a year and he still made a million bucks on it,

which is crazy. He's bought like a 60 room house. Wait, and I use house with like the quote, you know, quotes on both sides of my head. A 60 room house. He talks about how he turned that into this cash flow machine. How they went from, how he went from like being a waiter to flipping over a hundred houses every year and how they've built up a portfolio. How he's built his portfolio over 200 units now rental units. Really, really good stuff. Again, one of the most creative investors, guys are going to love this even if you're just getting started or if you've got a hundred deals you've done like this guy is somebody to listen to so you're going to love this show but before we actually get to the interview with james let's get to today's quick tip all right today's quick tip nice and

simple and easy our guest today james is actually a this is not why we chose him for the episode but he's a premium member on bigger pockets you know we have like we have our free members and we have our pro members. We now have a new membership called Premium members, and there's a lot of benefits for if you are a real estate agent, a lender, a hard money lender, a seasoned real estate investor doing a lot of deals. Premium might be really, really good for you, especially again if you're a vendor of some kind of Bigger Pockets. And there's a thread in the forums where one of our awesome colleagues, Vivian, who works at Bigger Pockets, she's product manager. She breaks down exactly what that is and answers all the questions about it. And we will link to that in the show notes, BiggerPockets.com.

slash show 338. Check it out there. Again, we'll also, again, link in the show notes, bigger pockets.com, such show 338. But that is our quick tip. Do you ever notice how every passive investment somehow turns into a very active lifestyle, active spreadsheets, active phone calls, active stress? Here's a better question. What if you could buy brand new construction homes, 10% below market value in the best markets across the country, without making real estate your second job. That's exactly what rent to retirement does. They're a full service, turnkey investment company handling everything for you. In some cases, investors get 50 to 75% of our down payment back at closing, plus interest rates as low as 3.75%. They've partnered with BiggerPockets for over a decade,

helping thousands invest smarter. If you want to do the same, visit Biggerpockets.com slash retirement to learn more. Do you ever notice how every passive investment somehow turns into a very active lifestyle, active spreadsheets, active phone calls, active stress. Here's a better question. What if you could buy brand new construction homes, 10% below market value in the best markets across the country, without making real estate your second job? That's exactly what rent-to-retirement does. They're a full-service, turnkey investment company handling everything for you. In some cases, investors get 50 to 75% of our down payment back at closing, plus interest rates as low as 3.75%. They've partnered with Bigger Pockets for over a decade,

helping thousands invest smarter. If you want to do the same, visit BiggerPockets.com slash retirement to learn more. You've upgraded how to buy properties, but did your insurance get the memo? When investors start scaling, insurance can't be an afterthought. Most policies were designed for a single property,

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Before your next acquisition, review your insurance. Talk to NREG and get investor-specific coverage from specialists who actually understand real estate at NREG.com slash BPPod. That's N-R-E-I-G.com slash B-P pod. And now, without further ado, leave us ratings, reviews, and iTunes. We say that every single week or Stitcher or Google Play, wherever you listen to the show. If you're watching this on YouTube, give the thumbs up. Anytime you're watching a YouTube video, Bigger Pockets, give that thumbs up. It tells the Google algorithm that it's a good video and they'll show it to more people.

If you're not following us on YouTube, do that as well. YouTube.com slash Bigger Pockets. And this show is going to blow your mind. I want you. This is one of the most impressive people we've ever talked to in my opinion. Be prepared. He is Gordon Ramsey, right? Like he's taking all of the same ingredients that any of us have access to,

but he's putting them together in ways that you've never thought of before and making gourmet dishes that turn into millions of dollars. I mean, any excuse you've ever had in real estate is about to get completely blown out of the water when you see the way that this guy moves pieces around to make deals work. Yeah, he's like Gordon Ramsey, but nicer. He's like the nice version. Yeah, he's like super cool. All right.

Well, with that, enough buildup of the show. It's time to get to the show. Let's hear from today's interview with James Dainerd. All right, James, welcome to the Bigger Pockets podcast, man. Good to have you here. Yeah, thanks for having me. I really appreciate it. Yeah.

So let's go through your story. I know you do a lot of cool stuff. up there in the Seattle area. When we were hanging out at Tarrell's event there, you know, I just kept hearing really good things about you. So I'm kind of excited to kind of dig into your story. So why do we go? What did you do before real estate?

And then kind of walk us in that journey going from not real estate to your first deal. So what I did prior to real estate is I was actually going to college at University of Washington in the business school. And I was actually serving burgers at Red Robin, kind of making a kid's fame for school. And my roommate at the time, actually. went to work for an investment company going out and knocking on people's foreclosure doors. And so I figured as a senior in college, I needed to learn really good sales experience. And the best way to do that is to go bang on people's doors that don't want to talk to me.

And so for my senior college, I would actually go knock doors three days a week and try to find them an opportunity to buy. And so they would just give me a stack of leads. I had no training on real estate whatsoever. And I would go out and knock on people's foreclosure doors and or just other kind of sellers and chat with them and try to get them to sell. Honestly, I was terrible at the job for the first year. I made $0.00.

I knocked on probably, oh, it was just falling. I was losing my gas money every month. I go to Red Robin. I work on tips, get my tips, put in my car, go out and knock on a door and get the door slammed to my face. And then, you know, once I graduated college, I was like, you know, I kind of like this. Real estate really interests me. I was seeing people making a lot of money flipping houses and buying and holding

properties and buying apartment buildings. And so I gave it like a six-month commitment after college to work. Basically, I was working six days a week, knocking doors to try to generate some deals. And all of a sudden, the lights just turned on. You know, I spent a ton of time researching the market, what to do, what a HUD was, what a loan was because I had no training whatsoever. And I just kind of fell in love with it after six months. And it went from making zero money to all of a sudden I was getting some checks for like

five, six grand from this. company that would pay me to find the deal. And for a senior out of college, that was a lot of money. And it just kind of got me hooked. So tell what does that look like for those people who are listening to this and maybe saying like, I mean, what were you saying to these people? You're knocking on their doors, foreclosures. Can you got to walk through like, what was the purpose? What were you, what were you doing? And then what were you saying to get them to sell you their house? So the purpose was I was I was working for a investment company at a Belby, Washington, which is a submarket in Seattle. And, you know, their purpose was they were just, they had a lot of investors

wanted to buy rental property or flip properties, and they just needed leads. And so they would hire guys like me to go knock on the door. And, you know, it was back then, it was pretty funny because I, you know, I consider I look pretty young now. I'm 35, but I looked really young at 22. And so I'd be knocking on these people's doors and they'd like, what are you selling? And they think I'd be selling newspapers or something. And so I would just knock on the, I even had earrings in too. So I was like, really young.

And I'd knock on the door and I, you know, I would just start it off with a conversation of, you know, I came by and talked about your mortgage and I have some people interested in buying your property. It was just kept it very simple. And actually, you know, I went out with a couple of the owners of that company and they're pretty high energy, very salesy guys. And that's just not really my thing. I'm kind of more analytics and get to know people like restaurants. You learn how to take care of people and you learn how to serve them. And so I kind of just, you know, I remember for the first nine months, I made no money, couldn't get it in the door. And then randomly, I talked to my mom. And she said, well, Jimmy, just,

be yourself. And literally, so I would just go out there and just talk to people. Like, instead of going out with that mission to go get their house, it was just more to chat with people and just have a friendly conversation. And then from there, I would, you know, get in the door and kind of talk to them about numbers on the house. Well, it's amazing how so many people, especially I see this with wholesalers a lot, people who are, you know, jumping in a wholesaling or even like flipping their door knocking, whatever, they think that they got to be like the person they heard on the podcast or they got to, they got to be somebody else because the, The guru they look up to or the podcast or they look up to or whatever is a certain way.

So they think they got to put on this like act like that person. But I love that you said that. Just be yourself. Like your mom was 100% right. Like because people can see through that fake like that fakeness all day long. Yeah. So if you're having problems, talk to your mom first. Don't worry about the guru.

Talk to your mom. And yeah. And it's really just when you're out wholesaling and you're talking to people, it's just getting to know them, getting to know their situation and they're, you know, what's their need for selling? and sometimes sellers don't know what their actual need is. And so, you know, a lot of times when I get to a situation, it might just be that they have two, three kids in a house that's way too small

and it's not that nice. And, you know, I kind of went in with an approach to help them get him into a better living situation. And by doing that, that actually, you know, I was focused more on their solution rather than buying the house. And then that just started bringing me a ton of properties. And so like I created, you know, at 23, I created this little business for, you know, I go out, I get them in credit repair, I'd line up movers. I find them a new rental property.

And what that did is it just got me a lot of deal flow. And then from there, you know, I started learning how to actually analyze the deals from there. How did you go from helping this company to doing your own first deal? Yeah. So, you know, part of working there is they would, you know, basically one out of 10 contracts, they would allow us to purchase the property. And so it was kind of like an incentive for their employees, you know, And even with my employees today, I have that same incentive.

I feel like employees that are passionate about real estate, they want to buy real estate. So they were getting me involved. And so, you know, my goal at 23, I was seeing all these guys making tons of money. I was like, I want to be that guy. And so they gave me an option. You know, basically on my 10th contract, I was able to start picking out the one that I wanted. That's cool. I've never heard that before from a company, but I really love that as well.

Because that gives the person who's working for you something to look forward to, hey, when I do 10 deals, that way also it's not like, I mean, I mean, like, I've worried in the past about hiring, you know, wholesalers or people to work with me. Like, what if they just go steal the first deal or a second deal? Did they have a way to prevent that? And then, you know, like, after the 10th deal, did you get to pick any deal or were there a certain, like, it was just number 10? It was after our 10th deal.

I got to pick any deal that I found after that. And I still have to pay the company, their fee. Yeah. Their fee, which, you know, that's part of the job. And, you know, and I think with them, I mean, a lot of the guys actually, so it was kind of weird. I was like this 23-year-old guy, and then all the other sales guys were like 35, 40, and 50 years old. And so I was the young guy in the group.

Well, I was also the guy working the most. I was around like 60 hours a week. And I was doing, by, after a year in, I was doing two to three times more deals than everybody else. And so they're like, who's this young kid? And, but, you know, none of the older guys, they were focused more on the paycheck than they were about buying real estate. So, you know, besides my business. partner, we were the only two guys in the company actually taking the employee option, which was kind of crazy to us. Like, you know, because, you know, for me, real estate's about

building wealth, not just making income. And, you know, it's, you can do both. But at the same time, if you just rely on checks, you're going to run out of checks at some point. And so, you know, my goal was not to just get involved and make a bunch of checks. It was, I want to build wealth. And, you know, so my first goal was to buy my own property, you know, which happened about 11 months into the product or about a year into to work in there. So let's talk about that first property. What was that? So it was in Beery and Washington, which is a sub-market of Seattle. It's about, you know, it's about 10 miles or five miles, five, ten miles south of

Seattle, the core area. And it actually, the reason I picked it, it was a two thousand and one built townhome. It was a townhome style, really good condition and needed carpet and paint. And at 23, I just knew I really didn't know how to renovate a property. And That was not my skill set. My skill set was finding the deal. And so I wanted to find something low maintenance that wasn't going to distract me from my daily duties of working.

And so I found this newer building. It was, I paid $1.76 for it. At the time, it was worth $2.45. So it had that equity position that I needed, you know, because also what I was looking for was something with at least a 20% equity position or discount because I wanted to, you know, at 23, I didn't have a whole lot of money either.

So what I had to do was line up financing for a first and a second with somebody so I could refinance them out of the deal. And so I was looking for something and didn't need a lot of work that I could refinance quickly. They had a 20% equity position. And for me, I'm a firm believer. If you're a newer investor, don't bite off more than you can chew. So it was a really good property for me to just start with. And it cash flowed me about $250 a month too.

So it was just kind of a win for me. Okay. So it was a rental property. How did you finance it then? Did you say that? Yeah, so how I financed it. I actually did a first mortgage with a hard money lender around town. And then I got one of our investor clients that liked me from finding them deals.

What I did is I did a really good in-depth analysis of the property to make sure he knew the equity position was there. And then I got fully pre-qualified for a refinance with 100% commitment from the lender. And so I went to him and said, hey, can you do me? Saul, I'll pay you. You know, I paid him 12% interest. and he did my second mortgage for me. And then he felt comfortable because I was all prepared. And, you know, so I was in and out of the loans.

I was in only hard money for two months because it didn't need very much work. So, you know, it got him refinanced. And that was my first deal. And then from there, I actually took a key lockout on the equity to then be able to purchase my next property. So I used that 20% to get me into the next few deals from there. That's cool. All right. So you, basically, the way we talk about today, right, it's burying.

You bought it. It didn't sound like it needed that much of a rehab. but you bought it rehabed, it refinanced, it paid off the hard money lender and the private lender, which is a phenomenal strategy, by the way. And then you then, now you own this rental profit, it's cash flowing. And because you had still equity in it,

you were able to tap into that equity using a home equity line of credit and go buy something else. Am I, did I sum that up good? Yeah. And so what I did is I didn't want to overfinance the deal. And so the HELOC gave me that, you know, instead of having to get a private money lender at that point,

it gave me an additional about, 40 grand with bank financing to be my next down payment. So then my goal of my next purchase was to find something very similar kind of situation with a 20% equity or more. And then I only had to put $40,000 down. So I had to find something with a purchase of less than $200 grand. Okay. Yeah. Awesome. So but yeah, the leverage put me into a whole other position. But that's why buying that first deal is so important to get a good equity spread because you can maximize off that and get in the start building your portfolio. Yeah, yeah.

So I love that. I mean, I'm a big, big believer in buying stuff that you can build that equity right away. And again, how do you balance, though, I'm curious between somebody who's just getting started, they're brand new, they're looking for their first deal, buying a deal that has tons of equity and just buying something to they get their foot in the door. If you're talking to a new investor, how do you typically advise them? Like, how good of a deal should they go for their first deal?

And where's that line between just getting something done? You know, what I always tell people, and this is the same thing I do myself, is what kind of capital, you know, like as an investor, I always have a certain amount of money set aside for my investing in long-term holds, whether it's, because I'm also a big flipper. So I flip about 100 homes a year. And what I do is I take 30% of that profit off the flips, and I allocate it from my buying hold. Oh, cool. And so, because that's, you know, like we are saying, money comes and goes. And for me, if I take 30% aside, it's going to build my wealth, not just. my income. And so, you know, for a newer investor, I always tell them, hey, the first thing you

want to do is find out how much money you have to work with. And then from there, build the plan off of it. And if you only have 10, 20 grand, that's okay. You just have to start setting your plan accordingly to what you can do with that 10,000. When I'm talking to an investor, if I only have 10,000 I want to put to work, I might look at cheaper submarkets out of Seattle because you can still get a good buy and hold and get good cash flow off it and put it to work because sometimes just getting your first deal done is the most important thing because you get to learn your processes, you get to learn your strengths and weaknesses. And then just don't buy any deal that crosses your plate that's a big discount deal because if you're also new, you might not have that

construction background. You know, for me, like I didn't go, I kept all with condos at first because they were easy for me to do. And then once I started flipping a lot of homes, it gave me, that skill set to buy these deeper discounted properties and then get them, you know, refinanced and pull out cash and then reinvest the cash. And so, you know, I kind of took in step. So my first four buying holds were all condos. And, you know, as long as they were good deals on the condo and I believed in the market and the rents were very consistent, like that was a good way for me to go. Plus, as a landlord, I kind of like the condos handle all the exterior maintenance. Like I didn't want to have to deal with all the maintenance and the wear and tear because I didn't

have the skill set to do it now now nowadays i don't really buy condos because i do have that skill set but it's a very good starting way or you know sometimes buying a newer built house is good too just because you know as you're learning all your maintenance of issues yeah that's that's a really good tip i mean i've always been nervous about condos but then i look at them i mean i got everybody out here in hawai his name's gregg and gregg buys condos up in like you know near the airport area not like not the greatest neighborhood, not the greatest complex, pretty low income, but the guy's picking up condos for significantly cheaper than the average thing in Hawaii. And he's making cash flow, like, I should get garg on the show sometime, because it's like stupid good cash flow on these properties that are like

section eight, like lower end condos. But when he explains it to me, he's like, look, they take care of all the exterior maintenance. They take care of all the building itself. I go in. He completely renovates these condos when he gets them, which doesn't cost so much money because they're a little one-bedroom, like cement boxes, essentially. And the guy's just making a killing office. So anyway, I was always scared of condos, but I never got into them. But it can be a fantastic way to get started. Yeah, you're probably not going to make, you know, you're not going to scale necessarily

condos to thousands of units. Some people do, I suppose. But, yeah, not a bad idea to get started. Yeah, because condos do have risk. You want to make sure the HOA search are reserves because that can really affect your cash flow. You know, like one condo, I got hit with a $9,000 assessment. I wasn't really. that's the part no one talks about is we all know there's an HOA fee every month,

but you can work that into your numbers. What you can't work in is when, oh, a tree fell on the roof and there's no money in our fund, so everybody's got to kick in $8,000 to pay for a new roof. And that goes like two years of your cash flow is gone, but something you couldn't control. Yeah, and that's, and that is, I mean, one thing is the maintenance is nice because they take care of it. But then again, you also have HOA people who are not usually investors, hiring out the work.

And that was my biggest problem. Like you guys just spent, you know, I remember had that assessment. It was for a fence in a roof. And they spent a ridiculous amount of money on fences. And I was like, I'm not okay with it. It's like when the government tries to take over and run a project. There's like no motivation to do it cheaply.

And you're like, this is seven times when I would pay for that same fence. And they're like, yeah, well, were they? That's funny. And I can't stand wasted budgets. It drives me nuts. Yeah. Yeah. All right. So let's go. You mentioned it's not going to go something that was kind of shocking. You said, I flip around 100 houses a year. Is that what you said? Yeah. That's crazy. Okay. So I want to know, how did you go from, first of all, like, you know, how do you go from the guy who buys a condo and then by the second one to I flip 100 houses a year? I mean, can you walk us through in like a minute? Like, how did you go through that transformation? Yeah. I'm just a little crazy and I like to work too much. But I think I'd like to torture myself.

But, you know, when we, so I got involved in real estate in 2005 and six, you know, and then we started our, I started my business in 2008 on my own. That was right when the market just fell off a cliff. And so during that time, you know, we were starting from scratch, you know, back then investors didn't want to touch. You could just give something, someone for free and they would not want it. They're like, oh, real estate, I don't want it. And so what we had, what I started doing is we'd, as a wholesaler, we'd find these really good deals.

back then because again, even sellers were just given away their properties. But no one wanted to buy them that much in like 2008, 9, and 10. And so, you know, what we did is we kind of became the buyers. And for us, it was about, you know, because again, wholesaling wasn't that profitable either. You know, you get a really good deal. Maybe you get five grand out of it. And we decided to, you know, we got lined up with a couple different lenders to finance us. And we started with just kind of cosmetic flips where we would actually do them a little bit nicer than everything else, like add in the extra tile, the granite, and be very thrifty about how we would buy these things. And also, we would factor they'd be worth 10 to 20% less by the time we were done

with them. And so what it did is we started with one to two and we're like, okay, we're making 20 grand a house. And this is something we can live off of because wholesaling was really low. Because, you know, a lot about real estate is just adapting to the market. And you got to put together your systems with whatever's going on in the current market conditions. And so for us, because no one was really buying, it allows us to get some really good deals out there. And then we just started flipping slowly and kind of building our systems. And, you know, went from doing like 10 the first year. And then we started doing 20.

And then by the time the market started heating up in 2013 and 14, we had already started, we kind of saw the trend and we went heavy in and started doing about 40 to 50 houses at a time with a big team. Then we saw all the upside and appreciation. And so, you know, like right now, I'm not flipping, you know, I have been doing about 100 a year. This year I'll probably do 50 because I'm just trying to be more strategic with the market. But yeah, it's just hard work. And no one wanted to buy it.

So we just took the risk and bought it ourselves. That's, that's amazing. I love that story because people listen to the show. A lot of them are on their first deal, their first condo, their second, their third, their fourth. And so it's like people to know, like, it doesn't take 20 or 30 years to scale up to a sizable business. It's like you just, you know, I don't know, put in the work, like constantly learning from your mistakes, figuring out what you can do better next time and having that vision, I guess, just kind of moves you forward, which is, which is awesome.

Now, you said we, who is we? Like, you have a partner involved in this or somewhat, right? Yeah, my partner, Will Heaton. So we've been partners, I mean, we're actually roommates when we started in college. Oh, nice. He's six years old. He's older than me. He's six years older.

But me and him are roommates when he started working at this, this foreclosure company. He's been a sales guy for a long time. And then so we've been partners since day one in real estate together. And we haven't shifted since. And we own all our business together. We own all of our rentals together, except for I do own a few of my own personal rentals that I'm always trained around. But, yeah, we're just 50-50 partners. That's cool.

So let's talk about that for a minute. What made you want a partner with him? Like what made him a good partner? And kind of maybe relate that to people listening to the show. How can they find a good partner? Like, I mean, obviously it's been good for you guys. You've been blown up. What made that so good?

You know, the biggest thing with, I've had a lot of partnerships over the years, and some have worked really well, and some have not worked that well. And, you know, having a partner, my biggest thing is making sure the A, your core values are on the same page, right? And that's, well,

starts with integrity, it starts with honesty, and then also starts a work ethic. Like, everyone's got to be on the same work ethic page. And then Will and I, we just had a passion for not just, again, going out and making checks, we wanted to build wealth. And, you know, that's been our focus.

We went from, I think, probably in 2009 was the first year we bought our properties together. And, you know, we started with a couple and now we're up to over 250 doors. And so that's because me and him are on the same vision, the same line that we want to build a long-term wealth portfolio of real estate. And so as long as our core values and core investing principles stay together, then we've been able to be really good partners. I mean, we probably had only like six major issues, like, confertating, you know, like big discrepancies in how we decide things in the last 12 years.

So it's very, very rare. We're just on the same page. Okay. So of these 250 doors, what are they made up of? Are they single family, multifamilies, mobile home parks? They're a little bit of everything, but we have probably about 10 single family properties. For us, we hold single family properties if they have upside with

zoning or, you know, some properties, well, A, we bought them right in 2008 and they're really cheap, but they're on very large pieces of land in some submarkets in Seattle. So we feel like the next building boom is when we'll probably develop those and sell those lots off or build on them, but not this, this building boom. And then we own, we have a lot of rooming houses where we take single family houses and we turn them into, you know, eight and 16 unit rooms next to the University of Washington, any kind of core school. We're actually doing one where we're doing a 60 rooming house in Capitol Hill right now where we're taking an art building and put 60 doors in. It's a very complex project. Yeah. And then we do a lot of duplexes and fourplexes

too with and we like things with extra zoning. You know, they have L zoned and they can be, you know, development down the road. Let's talk about this roaming house thing. This blows my mind. 60, 60 like rooms for students? Is that? That's crazy. Yeah. It's, you know, in in Seattle, affordability is such an issue. And so we bought this historical building in Cap Hill. It's a art house. And, you know, one of the things about Seattle is they want to preserve these kind of structures. And it was kind of like this had it.

It was more a place for vagrants, really. But they called it to our house. So when we went to them with this proposal, we were a little worried about it because Seattle does like to, I mean, they'll stomp on some development because they want to keep the core neighborhood together. Yeah. But the fact that we're rolling out affordable housing and they work with us so easy because there's so much demand for it. They worked with us on all different angles. And so what people need is a place to live and they want a nice place. And so these rooming houses we do, we actually strip

them all the way down to the studs, make them really nice, all nice kitchens, all nice for solid doors. And they can live there for $999 a month. And so with Seattle and kind of the hipster movement, people like shared living. You know, there's we work and co-living and they like it. And so what it really does, though, it takes a normal deal and you can hyper-accelerate the return by put the right plan together. And so that's why we came up these room and houses. This is fascinating to me. So is there like a common area?

It's almost like a giant dorm, but it's a, but it's not like a dorm. I mean, it's like, I mean, what is it like a hostel? Yeah, it's almost like a hostel, like kind of the feel it has. Yeah, so this one's a little bit more complex. Like I'm doing another one to next to University of Washington where I'm taking a triplex. This is only at $5,000, but it's grandfathered in.

And I'm turning that into. or no, it's a duplex, excuse me, and I'm turning into 16 rooms rather than a duplex. And so with these rooming houses, what we do is we do like a really big kitchen, chef-style kitchen with a big living area, flex area. And so each floor usually has its own little either, the main floor will have a huge kitchen, and then each floor has a little sub-kitchen with a washer-dry area. And then what typically we'll do is like in maybe one-third the units will actually plum-in little small wet bars too for them.

And those might go for like $1,100 a month instead of $9.99 to give them a little extra space. Okay. But people really, you know, most of what we get is, you know, a lot of them are actually, to be honest, it's like they're foreign students coming over. They kind of mind their own business. They want a nice, clean place to live. And, you know, and that's why we do them to like high end new construction quality. So they get a really good place and comfortable place to live.

And people kind of mind their own business. And if they have their own space, you know, they're good with it. We do try to get in, you know, if we have a good. 16 rooms we're trying to get in like 10 bathrooms because bathrooms are a big deal so you know it's usually like two rooms per bathroom two to three rooms and then some will have their own in suite bathrooms that we'll charge a little bit more for okay is that again this is this is this is just blows my mind i love this idea so you does a government because it is low income housing and they need housing for students and stuff so they're okay with like they work with you on this they work with

the zoning on this is that how that like how do you get through of that so like in neighborhoods and all that. How the zoning works in Seattle is you can put in, if you have an SF 5,000 property, you can actually put in eight bedrooms there. But you can't do more than eight at that point. So really, you know, so when you're picking these, you could go get a 6,000 square foot building, but you're only still going to get eight bedrooms. So there's kind of this sweet spot with the size of building that you can get. So that's kind of, we learned that in the kind of downturn is we were actually looking at a house next to University of Washington. And it was, it wasn't a good enough deal for a flip and it didn't really pencil as a rental, but we knew it was 390 next to the

Udub. And at the time, again, it wasn't that good of a deal, but we saw potential we were like, this 390 next to Udub, this is a good buy. And so actually Will, my partner came up with the idea and he's like, hey, there's this rooming house thing. Let me dig into this. And then so we took this, we paid 360 for it. We put 250 grand into the building and made it really nice. And it was our first one, so we had a little bit of inefficiencies on our construction. Maybe we made a little too nice, a little too in-depth. But that thing brings in now $9,000 a month in rent. And so our cash-on-cash return is astronomical,

whereas every other investor, and this was a property just sitting on the market. No one wanted it. And we just kept looking at it. We're like, this is a good piece of property. And it was also next to a freeway, too. So like the flippers didn't want it. The rental people didn't like it.

The zone SF 5,000. And then since then, so we're into it like 600 grand, brings in nine grand a month, which is just a ridiculous amount for a core neighborhood in Seattle. And then since then the zoning changed, and now we can actually build, it got up zoned because, you know, when we do look at these buying holds, we're also looking at path of progress,

like what's going on in the neighborhoods. And that's why we liked this one is see more commercial than residential. So they up zoned it. And now we can actually build two houses in the backyard too. That's cool. And so if you put the right strategy together and not just overlook the just one sitting there that everyone's overlooking, then you know, you can get something that's a gold mine. Yeah.

Such a good, such a good tip. There are ways, again, real estate, I like to say this a lot, real estate is not two-dimensional. It's three-dimensional. Like a lot of people look at a deal and they're like, well, they're asking $360 or $3.90, whatever. You know, they're asking this price. I could rent it out for this much. Doesn't make sense.

And they move on. But like, you guys definitely have shown like, you're like, well, what if we did this? And what if we did this? And what if we did it? It's like a multi-dimensional project. And when you start thinking that way in real estate deals, to use a cliche, like the world's your oyster, right? Like, I mean, like there's a lot, not that every deal is going to work out, but the number of potential properties out there, it just the sky's the limit. There's so much out there if you just learn to think three-dimensional like that.

Now, is that something you just get over time or like, how did you learn to start thinking more creatively like that? You know, I think the credit actually goes to our flipping processes because we got, you know, a lot of even bad. in the day, we would buy these small houses and carve them up into like, you know, we'd take out a 950 square foot house and turn it into a three-bedroom, two-bath, affordable product. And so we got really used to putting together like value engineered design. And then all of a sudden we're like, oh, well, if we can rent these out for eight bedrooms legally, we can put our same flip process into our rentals. And, you know, because a lot of times people stayed clear from the major fixtures in the rentals. And I don't blame them.

There are a lot of work. You get dead time on your money, you know, for a year, you're out. You're not making income. But if you put the right strategy together and you have the right systems, you can really maximize out these returns. And the flipping really benefited us because we know construction. We know how to design things. We know how to get the permit pushed through. And we know how to get the inspections done. And so it's been a huge flipping is good for income and maybe not for long. I mean, it helps long term wealth by building your capital. But it also gives you very good systems and tools. Because flipping is not easy. So the more you learn on it, the more tools you have for your rental portfolio. So let's talk about the construction stuff because that is something that scares a lot of people. First of all, when you're first, not you necessarily, but when people are first getting into it, do you have any advice on how they can better estimate the cost of a rehab? Like when they're brand new, like how did you do it?

Or how do you know, newbies can do that? Yeah, construction is really tough because I think a lot of investors, a lot of people I work with, you know, they do this, this cat and mouse game with him. They're like, oh, my budget's 100. So I'm going to tell the guy 90. And then he's going to come at at 140.

And then we're going to try to meet in the middle without really going through and logically breaking it down. And so what I've done is I created a spreadsheet for my whole team to use that breaks down square footages and then it breaks down install rates and material rates. And the best thing an investors can do is find out what a normal install rate is per item. because a lot of people don't even know that. Like, an electrician should charge you $25 a fixture to install that fixture. That's a pretty normal rate.

You know, on the high side is $50. Giving to know those things, you know, like if I break down electrical, I know a panel is $1,500 in Seattle. That's a normal rate. A fixture is $25. Running wires $3 a square foot. So I get all these numbers from the electricians, compile it.

And then when they give me a high bid, I then just work on backwards and say, okay, well, how much are you, charging me for the panel, how much you charge me to run wire? And you just have to really know your install rates. But the whole back and forth thing with the contractor is not a good method, because it just allows for massive amounts of change orders. And so you really want to get the install rates and everything figured out and working with a really good team that can help you with that. That's great. I think what I love about what you just said was that you don't just,

everybody asks, how do you calculate rehab costs? Like it's something that we can just say, well, here's a cheat sheet. Every contractor is going to charge the same thing. It's so complicated to explain to people how that works, that there is never going to be an easy way. You have to do exactly what you just said. How much is it going to cost you to do the wiring? Why does it cost that much? How does a contractor look at it? Does he look at square feet? Does he look at how many boxes he's going to put in? They have a method or a metric that they use. And you're asking the right questions so that you can understand it from their perspective. And I tell people that all the time when they're saying, well, how do I know what the ARV is going to be? Well, do you know what an ARV's method, I mean,

sorry, an appraiser's method is when they look at a property, how they come up with what the price is. Because if you see it from an appraiser's standpoint, you can get a really good idea what your RV is going to be. If you know how a contractor looks at a home, how they bid it, how they price it, you can get a really good idea. You're doing that really good, James. Like everything that you've said is you look at a problem, all right, I want to buy that

house, but it costs too much money. How could I chop it up into little pieces and rent them all out to make that work? What would I need to know in order to do that? And you've just systematically broke this down into smaller pieces. pieces, that then it's very easy for your brain to look at that problem and say, I can make this work or not. Yeah, I just, I always work backwards off the issue. Yeah.

And the other thing is, I dictate where the contractor get their materials from, and I know that pricing. So, like, I'm saying, hey, you're going to get this floor from this area, or this supplier. It's $1.65 for the materials. And an average install rate is $1.50 to install this. And so when they give me a high quote, I can ask them a logical question. And if they can't answer it, they'll usually come down. or they're just not the right guy and they don't know how to estimate something regardless.

And so at that point, you don't want to hire them anyway. Isn't that 100 times better than just living in fear of I hope my contractor is not ripping me off? Or I don't want to do this at all because a contractor might rip me off. That's what Brandon and I see all the time is, well, I don't know. What if they're taking advantage of me? But what you just said is, well, I know the materials are $1.65 a square foot. I know the install rates $1.50 a square foot. So it should be a little over $3 a square foot times however many square feet I need.

and if he's at $10 a square foot, he either doesn't know what he's doing or he's dishonest and I can use someone else. There's no fear. There's no apprehension. There's no worry. There's no anxiety. It's a very easy,

quick cut decision you can make. Yeah, and you really got to focus. I do something I call it the bundle method where I'll take my whole budget and I'll chop it into like six sections. And that way my, like for construction, I can take my kitchen cabinets. I just go to my kitchen cabinet company.

And I know exactly what they charge me for the, the cabinets that counters in the install. And so I take those things away from the contractor because I don't want their ambiguity to kind of mess up my budget. So I'll take my whole budget and chop it into six really systematic things. Like I have them do all the hard work and the planning. But the easy stuff I'll pull out for myself and just call my dependable subs that will give me that guarantee price.

And you know, I bet if you get good at this, you could probably go to a contractor and say, here's what I need here is what I'll pay you and you already have it broken down. And I bet you a really good percentage contractors would actually prefer because they're not good numbers. That's not what they do. They like to build things and get sawdust in their hair. They don't like to have to use spreadsheets and numbers. And if you could go to them and say, here's what I need, here's what I'm going to pay you, here's what it's going to cost. And they can just look at that and say, oh, I'm going to make $7,000. You got it. And now you don't have to worry about overpaying. You're the only guess I've ever heard that.

That's really good. For the people who are out there saying, well, how would I ever figure out what a cabinet costs or how am I going to get these numbers? What James did was he went and worked for another company that was already doing this and he built his skills serving somebody else. And that was how he got started. He got knowledge. He got confidence. Then he did his own thing. That's what I'd recommend if that's what your problem is.

Well, I don't know how much that stuff costs. Well, go to work for a company that's already doing this. Go to work for a guy like James. Figure out a way to make it worth his while to hire you. That's the fastest way you're going to learn. Now, one thing I want to know is you're definitely doing big things. You're good at what you do. And you're very humble about it, by the way, which is impressive.

So good on you, James. Tell us a little bit about where you're finding deals because that's probably the number one objection that I hear from people other than I'm scared is there's no deals out there. You know, I hear the same thing. People are like, oh, I'm going to different states and there's nothing wrong with investing

in different states at all. I'm a firm believer. You should just invest in everything, especially just learn it before you invest there. I like to play in my own sandbox, which is King Snow and Wish in Pierce County. I like to be able to drive it. I know my crews.

I know my systems. And I do a little bit more complex plan. So I need to have my system. systems prepared. But everyone always asked me, like, how do you get these amazing deals? I buy them right off the market 60% of the time. And I buy them off wholesalers. I also own a wholesaling company. So we direct market to sellers as well. But the best deals that I find are right on the market. And they're usually misrepresented by the broker. The broker doesn't quite know what they have going on there. Or maybe it was a flipped inspection deal. And the previous buyer's inspection was

so gnarly. It freaked out the broker. And, you know, so we're always combing through the MLS. And I love the ones that are just sitting there on the, I mean, even my own, like, I just flipped my own house basically in Bellevue. And I paid $8.50 for it. I just sold for 3.1 over two and a half year period. Wait, 3.1? And that property that bought was on the market for 360 days before I even, and I bought it 10 grand off list. Like in, The seller wouldn't budge. No one wanted it. Everyone thought it was a tear down, which it wasn't.

And so they were pricing at dirt cost. And I'm like, no, this is a structure I can fix. And, I mean, it was a lot of work. I put over a million dollars into it, too. So it was definitely, it was not easy. But I worked for it. My wife worked for her too, because you dealt with it. And so those deals are out there as long as you can underwrite and look at them in the correct way.

We also bought an apartment building off in Massachusetts. Magnolia, which is a really good neighborhood in Seattle. It was sitting there for over 200 days. It flipped four times on the inspection. We ended up getting in contract 300 grand off list because it was the fourth inspection. And we bought a 3.2 cap, which is not a good cap rate. I would always tell people, don't buy that. And after raising rents, we got it to a five, which is still okay, right?

But that's not my standard. But the thing that everybody missed is we should have short platted off two lots in the back. and now we're building two homes and it's bringing our whole basis down $600,000, no, $950,000 off because we're building the two homes and selling them off. And so it turned our 5.2 cap into now we're going to be around a nine cap in Seattle, which is amazing. That's exactly what I said earlier about the 3D, like thinking about real estate in three dimensions and stuff too.

Like exactly what you're like, that's your like magic superpower. If you were like an Avenger, you'd be like the 3D real estate investor. I'll get at that. Yeah. The one thing you have to be careful, though, is don't go to, because we have learned getting into the too big of a project, you kill your return for two years. Yeah. You need to factor in your dead time on return.

And that's, we've had to learn that over the last couple of years. Like, okay, well, maybe we're going to do it this way now. Or we're going to do less projects to be more efficient and get the cap right out. So you can start to over exchange. And, you know, so we kind of learn that. And now we're kind of more balanced out. That's phenomenal. Toto talks about that too. They do a lot of flipping in Hawaii. And it's basically the economic

concept of opportunity cost. So you can look at it. You can say, well, I'm going to make this much money. But you also have to factor in, well, what else could I be doing with that money during the time? Like what you call dead time. That's a really good point. And sometimes when you, you want to get a dealer, you want to brag to your friends about what you did, you can make those decisions without thinking about, well, what if I got to turn that money over four times on flips where maybe I made half as much money. But if you did it four times during that period, you did it. you would have made twice as much in the end. So that's a very good point you're bringing up,

unless you can get access to other capital so that while your capital's tied up, you can still do deals with someone else's. Yeah. And finding deals on the MLS is really looking for that broker that doesn't know where they're selling, but also looking for that next market that's still depreciated, that path of progress.

So those condos I bought originally, I ended up 1031 exchanging those into a house in Sunkadia, Washington, which is kind of like a resort town, because I saw my condos go way up in value. And I'm like, okay, these things are at the peak of a market. I need to sell that and maximize my equity. And I 1031 exchange it into a vacation rental, which was totally random. But it brought in, they were renting for $1,100 a night.

And then I liked that for upside because I was buying it below replacement costs. They spent $400 a foot building these houses and I was buying at $2.70 a foot. And so I saw the runway there. Buying it holds not just about your income you collect. it's about like placing your money in markets for a couple of years and then repositioning in it when the market starts cooling down because that's how you can hyper accelerate your appreciation and your return by buying it so you're always increasing your cash flow but also increasing your equity position the whole burr method and then taking the equity and putting the

equity to use so you're not a i'm going to buy it hold it for the next 50 years you're always looking how do i get a better return on my equity that's there that's in you know and In this kind of market, I think we, you know, I personally think I have to be because right now markets in Seattle, there's a lot of things at peak pricing in my opinion. And I look at, okay, what's the upside? Am I going to get that much more in rent? The asset maybe has appreciated 25%. And then if I really like the building and it's just turnkey and I don't want to mess with it, then we'll leave it alone. But or all then I want to always increase my position. Like being an investor is my full-time job.

So if it just takes me a little bit more work than to roll it over, I'll switch it over there. So, you know, I mean, even the Sancadia property, when I bought that, I was like, oh, I'm going to keep this forever. I love it. I get a vacation there. And then it went up 350 grand in value. Yeah. And I'm like, well, that's, that's now going to go down because then I also saw a record number of building permits pulled there. And so I'm not only just looking at my asset. I'm looking at what's going around on around my asset. And so if I'm seeing a bunch of building permits pulled around one of my assets, that means there's going to be an oversupply, which is going to bring my value down. Very smart. And which also could bring my rent income down.

And so then I ended up selling that and going back into a traditional investment from there. But usually I keep them for minimum two years. There's some, you know, in me and Will's portfolio, there's property like that 50, 60 room rooming house. We're going to keep that because that's a lot of work. And it's a high income. Yeah. And that's just going to be a staple property for us. But other ones, if I can increase my position, I'm always going to increase my position because I'm not retired yet.

So that's my job is to always increase my investment position. Well, I talk about that in long-distance real estate investing, that return on equity is a metric you need to learn and understand. Because when you bought the property, let's say you're getting a 10% return and rents have gone up and now you're getting a 15% return. And it's easy to say, wow, I'm crushing it. I'm doing so good. But your property has increased in value so much that the return of your equity is one or two percent. And if you were to reinvest that money, you were getting a 3% return. Now you're getting a 15% return on something new.

You 5x your cash flow. And you have the value at opportunity that comes from buying a new property and turning it around. Like I'm sure you would say, James, from the deals you're doing, the money that you make, the equity that you build comes primarily from buying underperforming assets and fixing them up, making them worth more. It's that initial. I bought it cheap. I fixed it up where most of your wealth comes from.

And then the rest is where we just let it go and the cash flow comes in. But make sure you're, you're, equity is working for you. Look how hard is you working at what you're doing. You can't let your money not work when you're working this hard. And you understand that. And that's exactly why you're building well so fast. As you're buying it, you're making it worth a whole lot more. And then you're saying, well, is this equity better spent sitting in this property? Or can I get more somewhere else than moving into a new asset class? And you combine that with everything you know about real estate zoning laws, how to buy deals off the MLS, making a hostile, like all this stuff you're

talking about. And you're going to accelerate your returns quite a bit. Yeah, it's really just comes down to timing too. It's because right now the market is still appreciating in a lot of neighborhoods, especially in Washington. And so for me, I'll probably stop exchanging as much once the market kind of flatlines out. And the other thing I pay attention to when I'm trading around is bank rates are really low right now. So it's easy for me to trade around. But once rates creep up, which they will eventually,

then it doesn't make it as worth your while to trade around a property because now you're also trading, you may be trading into a better discounted asset, but your bank financing can be two points higher. And so there's all these things outside the box that you've got to pay attention to. And so for me, the last five years, I've seen what's going on the market. So I've been doing all my trades.

But at the end of the day, when everything stops and I'm going to settle down, I'll be locked in with low rates and always increase my equity and cash flow position. And so if it doesn't, if I can't get a low rate and I'm not increasing my cash flow position, then I'm not going to sell that asset. Once you've got like a rooming house with 60 doors and you've got a total of 250 doors in your portfolio,

and a lot of that is not just an individual house that one property manager is doing. It's a property with a whole bunch of doors in it. How are you structured to collect those rents, make sure your bookkeeping gets done? I'm sure you're not making sure all 60 rooms are full in your rooming house. How have you delegated that responsibility to other people? So we used to use property managers and property managers are a good way to go. They can't cost quite a bit. And once you get to a certain portfolio,

we actually have two full-time leasing people on our staff now. And so we just have it all in-house. Accounting is all done in-house. We use a yardie system for collecting rents. And so it just really comes down to, you always want to analyze your portfolio, what your expense is. And if property management,

usually we can get it for about 5% to 6% locally if you're giving them a lot of business. So we run our 5% to 6% cost and then, you know, at that point, it makes a lot, it's half the price to have two full-time salary people. And in addition to, we also can control the maintenance cost because we want to do our own maintenance because we're frifty. Bad, or not bad property management. Lazy property managers that send the first handyman they find that charges three times what your guy would pay. Yeah, that's your biggest expense with single family housing. Yeah, that's how I pull

my hair out. I'm like, you just spend how much on a toilet? Like, yeah, I just can't. I still have that that cheap side to me where I'm like, no, I'm not paying that. Yeah. So we, I mean, just putting together the right systems. And that's where you have to look at your portfolio and go, okay, well, how much time do I have? You know, if I'm a Microsoft guy, I'm probably still going to use property management because I'm not a full-time investor at that point. And so for me, like being a full-time investor is my business.

So I, you know, we had to hire and staff accordingly. Yeah, that makes a lot of sense. And a lot of real estate, what I found is like, if you can get to that certain level, There is that level. Like at 20 units, it might not be worth it. You can't hire someone. I mean, it's not worth it. To hire someone in house to run that.

At 30 units, it might not be worth it. You're still doing it yourself. But there gets to be this point. Maybe it's at 100 units, maybe at 200, where you can bring that in house and then lower all your costs. It's almost like, I'm looking at this with mobile home parks right now and with other, with apartment complexes. What number do I need to get to where everything becomes cheaper at that point because

of the economy is the scale? So like, I'm not saying I'm going to go out and buy bad deals, but what I can look forward to is, hey, I can drop that property management cost from, you know, 7% down to 3% once I get over 200 units because then I'm going to bring it all in house or something. It's another interesting way to look at a kind of a three-dimensional deal. Yeah, and you always just want to perfect your return, especially if you're in a stabilization period.

We're like, okay, I'm making 10%. Can I get it to 11 by doing nothing? Yeah. Or by change of things, not doing nothing, but changing things around. Yeah, definitely. Well, hey, I want to move us along to the next segment of the show and dive deeper into one of your particular deals. So it's time for deal deep dive. People love to call real estate passive income, which is interesting because most of the investors

I know are very busy. Busy finding deals, busy managing teams, busy worrying they pick the wrong market. Rent to retirement flips that model. They help investors buy turnkey new construction homes, often 10% below market value in top rental markets across the country. Their local teams handle the build, the property management, and the detail. so you don't have to. In some cases, investors even receive 50 to 75% of their down payment back at closing, and there are interest rates as low as 3.75%. They've been trusted partners with BiggerPockets for over a decade, and if you want to learn more, visit BiggerPockets.com slash retirement. People love to call real estate passive income, which is interesting because most of the investors I know are very busy.

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slash B-P-P-Pod. That's N-R-E-I-G.com slash B-Pod. All right, the deal deep dive. This is the part of the show where we dive deep into one deal that you've done and ask a series of questions about it. So let's see, you got a property in mind then before I ask the questions? Yeah, yeah, yeah, I got one I just closed on and I already list one of them, too. It's kind of a flip rental pseudo.

Yeah. Perfect. All right, well, that's the first question. What kind of property is this? Is it multifamily, single family, and then where is it? So it's in Olympic Hills in Seattle, Washington, which is about 10 miles north of downtown. So it's a good transitional neighborhood borders with shoreline. It's actually a single family purchase where I purchased three single family houses.

And then it also had a detached 1,000 square foot ADU in the back and a detached three car garage in the back as well. Okay. Wow. Yeah, it was a deal I bought off a builder that needed to cash. So three single family houses and a thousand square foot ADU, like an extra unit. So it's almost like four houses, but not really, right? Yeah, four, it was the ADU is bootlegged into one of them, but yes. Yeah, okay.

So basically three and a half houses in a big, big garage. All right. And you, yeah, which is good for toys. So that's awesome. You said you found it from a builder. Can you tell us a little bit about that? So, you know, one good thing about buying properties in Seattle for so long is people kind of know us that if we gave them their word, we're going to close on it.

And so there was a builder, you know, a lot of people are doing, like we've been talking about 1031 exchanging and a builder kind of got caught and you needed to sell off some properties. But he's also a very experienced guy. He wasn't going to give him away. We came to terms and I ended up buying these properties. It was a combined purchase of 1.56 million for three houses. And he had been shopping it actually for like 60 days before he found me to buy it. And the reason being is a lot of people just said no because on a cap rate basis, there were rentals for them. It was like a four cap on houses in Seattle, which isn't very good. And, And then the equity position, I paid five, basically $540 per house, and they're worth $699 to $7.50.

So there wasn't that big of a discount for a flip either. And so when he ran by me originally, it was like, no, I'm not really into this, but I went and drove it and took a look at it. I was like, oh, okay, no, I think I can come up with a plan here because, you know, partially what he did too is he built three houses, built that ADU in the back, built a garage in the back. and they were all crossed all over property lines. And so, like, the house had the garage, but you couldn't get too late. And it was just kind of a mess. And so kind of what I kind of dug into, I was like, well, I really like this property with the ADU in the garage because, you know, it will rent out. But, you know, for that front house will run out for 3,500.

The ADU will run out for about 1900. And then I can rent the garage out for $200 or $100 per bay. So, you know, there was a combined rent of around $6,000. thousand a month on this property. But the rest of the properties were kind of these like drag downs and then even at the purchase of 550 and the renovation. I'm like, this still isn't that good of a cap rate. So what it ended up doing was looking at two of the properties and running the flip numbers on them. And because they're pretty cosmetic, what, you know, I'm in the process of doing, I'm listing one this week, is selling off two of the property. I short platted them, boundary line

to adjust everything around to where the one property now had all, they had the, had the, house, the ADU and the garage, and I'm flipping the two houses to take my basis down on that property. And by flipping the two houses, I'm actually generating about one 10 in income there, which is going to take my 550 purchase on that one building, and it brings it down to 440, which is a more, it ends up being a payment of $2,400 a month taxes and insurance included, which is now going to bring me in six grand a month in income. So after that's awesome, I have no money in the deal. Once I'm done flipping them, I'll have no money in the deal and generating about 2,500 to 3 grand a month.

Plus, I get a stick on my crap in the garage. That's amazing. So, okay, let me dive in a little bit. I was going to ask him, did you just pay what he wanted to $1.56, that way you ended up coming at, or did you negotiate him down a little bit? Oh, at first I was going to tell him $500 a house. And then I drove over and kind of looked at it. I was like, oh, no, I can pay this.

And then, like, I wanted to realize it before someone else realized what they could do with it. I think everyone kind of blew by it, you know, because there's houses right by that for sale for 575 dated. So it didn't look like there was a lot of discount on that houses. Yeah. And so, you know, for me, I wanted to kind of, naturally, I always like to grind people down, but at the same time, I don't want to lose a good deal. Sure. Yeah. And if I can make an extra two grand a month and get storage for free, I mean, I'm going to, you know, I would be kicking myself a year down the road. Yeah. The other thing, it also passed. where I was in contract on this is that new ADU rule in the back to where now I can actually

condo off that back house in if I ever want to. And so now the combined value is worth like over a million and I'm only going to 0450 on it. Oh, I didn't know Seattle had that. I know we have it out here in Hawaii where you can condo out your ADU and separate. I didn't know Seattle has that. It's cool. You can't. It's been around for a while. There's a trick to it. So maybe I'll, I can explain the trick to you later. Sure. That's cool. About going through the county. So, like, at first I was like, no, I'm not really into this. I didn't really like the street. It was surrounded by apartment buildings.

So I was like, yeah, the upside of the houses are really there. But then once I did all the math on it, I was like, oh, no, this is going to work. And so, you know, I was paying them a little bit more of a premium on it, how I looked at it. So because I was paying him in a premium, I got cheaper financing lined up right away. He let me conventionally finance them all. So it saved me all my hard money and debt cost. Okay. And that was my thing to him.

He wanted cash. And I said, well, hey, I'm going to pay you what you want, but you got to give me $4. days to close these. Yep. And by doing that, it saved me about 60 grand and hard money cost on there. And so, like, I was just by getting the 45, I gave him what he wanted. Instead of chasing trying to get him down 60 grand, I just gave him what he wanted and financed it, dealing a different way.

So how did you explain how you financed it, how you funded it? So I funded it with, I'm a, I actually really like working with credit unions and local banks, especially once you have more than eight properties financed in your name. And as an investor, a firm believer, you should go meet with all those people, get them comfortable with your processes. And once you get that, you can actually get pretty good financing done quickly and very low. I mean, it's not very hard. And my books are very complex. It's a lot of different companies feeding into each other with a lot of different write-offs.

And so it's, it's a, I'm a mortgage guy's worst nightmare when it comes on paper. But they, you know, I work with Elastic Credit Unit on these ones. They were quick, they fast. and, you know, because of the plan, I explained doing my plan too and what I was doing. And so I was able to just put 10% down on all those properties as well, which usually you've got to put 20% down. But after I showed them the income potential and what my plan was, they actually got it down to 10% for me. That's awesome. That's just another reason why, like, yeah, getting to know those community, local community banks, credit unions, like really, really smart idea instead of just going to the big, you know, national banks.

Yeah, national banks, they have different people making the calls and they don't know us. And so I've always had more luck with local banks. Yeah. Yeah, that makes a less sense. All right. What about like, so the end of the day, you got it with 10% down, but are you going to refinance out now once you sell off those two properties? Is that the plan?

Or how does that work from a title standpoint? I got a really good rate on the one. And so what I'm doing is the two flips are going to generate me about 120 grand in cash. And so after taxes, it actually comes down to 80 grand, which is the down payment for the one. It's actually, at the end of the day, I'm plus $30,000 in my pocket, and I'm walking with two grand a month in cash flow. That's awesome. And I locked in a really, it was, because rates dropped at that time.

I think I'm at like 4.65 on a 30-year fixed rate, because this one I do plan on keeping for a while. Yeah. Because I, well, A, I need the garage. So it fits really well for my construction company. Like, I can put tons of stuff in and it backed out. So, but for now, I plan on keeping this one for a while. but after everything, and that's when I really realized it was a really good deal because I could flip the other two houses, basically get all my down payment back plus 20 grand and collect two grand a

month. That's so cool. That's amazing. So what, I'll take the last question, unless David, you want it? Lessons learned. All right, what's the lessons learned? Like, what have you, what have you learned on this project that you could share or that you, you know, made an impact on you? I mean, the biggest lesson I learned on this was actually when I did my first, so when I was purchasing the property part of it was I was going to do all the easements to get rid of the title issues with the buildings on different property lines. So originally what I did is I just went in and did an easement and recorded easement for access. And so it cost me like three grand to do, three to four grand had to surveyed out, got it all done, closed on the deal. And I was about ready

list the property three weeks ago, one of them to get my cash back. And I screwed up. I didn't think about my plan of possibly condoing off the house down the road because to do it that way, I can't do it with the easement I recorded. I need to do a boundary line adjustment. And so I kind of, I did my first plan was too rushed. And so now what I had to do is unrecord the easement, go in for the boundary line adjustment. And what it's done is it made me sit on the middle house that I'm selling for another month, which is loss of $3,000 at that point. Sure. But it would have been a lot more detrimental, actually, if I didn't do it, and I sold the house,

and then I couldn't condo it later because it's kind of specific rules. So it's just doing, making sure, you know, sometimes speed isn't your best friend, right? Don't rush into that project and just try to get things done. Because my goal was to get that one flipped in 45 days, get my money back, and then move on the next deal. And I should have slowed it down because it probably would have saved me $6, $6,000 at the end of the day. It's kind of wasted money, plus it was just sitting there. Wow.

That was a phenomenal story, though. Very, very cool. And yeah, good luck on that project. I'm curious. Yeah, that's so cool. I love, again, it's just over and over and over. This theme today just keeps coming up of like just finding different creative ways, not necessarily to finance a deal, even though that was creative as well,

but to put together something that might not be a deal and how to turn it into a deal. We just keep coming back to that. And I love that. That's like, that's your superpower. So, yeah, keep that up. We call inventing returns. Like, you can't get a cap rate of five or more than, you know, you get a four and a half to five cap in Seattle. So we're not okay with that, but we like the area.

So we have to invent our own returns to get it to where, like to meet our minimum standards. Yeah. It's like David and I always talk about today's market, you don't really find good deals anymore. It's not 2012 or 2011 anymore. Today you make good deals. Like you make them by being creative. And that's exactly what you've done. So very, very cool.

Well, before we get out of here, let's go over the next segment of the show. it's time for our fire round. It's time for the fire round. All right, time for the world famous fire round. Of course, these questions come direct out of the Bigger Pockets forums, which you can visit. Everybody can go hang out there at BiggerPockets.com slash forums. Totally free.

So let's do with some people. Got to ask some questions of James here. Number one, Hector from Overland Park, Kansas said, I've got no cash, but I do have an investor willing to fund my first flip. What do I get out of? it? What does he get out of it? What's the best way to approach him in form a relationship that can

continue into the future? What advice you got for Hector? Well, Hector, just like I did my first one, instead of bringing in an equity partner, I just paid him like a lender because for me, it was about getting that first deal in my name. And so you find that really good deal. And, you know, what you want to do is you want to go or what I did is I went to my investor with a plan of, hey, I'm going to buy this. You're going to do my second for me. I'm going to pay you this return. And sometimes it makes more sense to overpay that person on a return to get the deal in your name. And then get set up to get him taken out with a plan that for, you know, give him the plan to get your money back. And then so you just pay a little bit more for your

financing rather than giving up equity on your first rental. You know, you don't, that's just where I came from. I wanted to start building my own portfolio. But I offered to give him better loan terms in a safe loan rather than giving them equity in the deal. All right. Beautiful. Very cool. All right, question number two. I love hearing success stories on the podcast, but I'm wondering if you can share a deal gone wrong. Why did it fail? Bad location.

Did you overpay, bad property management, et cetera? I have more bad deal. I have tons of tons of bad deal stories. And you have to be, that's how you learn in investing. And, you know, well, I guess going back when I was new, the biggest mistake I made was go jumping from buying condos to buying a really big fixer house in the middle of nowhere. and I had no systems for construction.

You know, I had only dumped carpet paint, but it was this amazing deal. I was paying like 40 cents on the dollar for, and I just got smoked on this. Like time and materials, it went six months over timeline. And then during that six month, 2008 happened, and the market crashed, you know.

And so I was three times the amount of budget, three times over the timeline, lost all my cash. And that's because I was buying what I didn't know how to buy. And so as an investor, I won't buy unless I have a process somewhat figured out for it, because that's how you can really get your butt kicked. I also same time, I bought a commercial building during that time, which I don't buy commercial office space is what I learned.

And I learned that because we bought a really cheap building in a not that good location, but it was this amazing. We were paid like $100 a square foot for this office building. But it doesn't matter if no one wants to rent it in a bad location. Yep. And so it sat vacant. And we actually had to move our whole business down there in the market crash and occupy it. And then get it leased up.

And that's actually how we learned condoing things off. We conjured out little sections and leased it up and then moved out. But it always comes down to not buying the right deal or not buying what you don't know. Yep. I had a mentor telling me early on in my career, like very, very early, he said, you can go broke buying good deals. Yes. And I didn't fully understand what he meant back then, but I completely understand it today. Yeah.

Yeah. just because it's cheap, doesn't mean they're just because you think it's a good deal. It doesn't mean you should buy it. Number three, Adam from Roxbury, Connecticut said, my tenant wants to put in a ceiling fan in the unit he's renting. He said he would buy the fan and his brother, who was an electrician, would do all the wiring and install it for free. Should I allow him to do that or any advice on how to, I should go about this?

Personally, I wouldn't mind if a tenant improved mine, but I also want to make sure it's my building. They get a permit and it's inspected. And, you know, you don't want the liability. of that thing possibly catching on fire because he had his brother do it. Yeah. You know, and personally, I don't really talk to my tenants

because I'm a softie. Yeah. So, like, I'll just usually approve it. So they go through, usually my property management team will say no. And then if they ask me, I'll probably say yes, but get a permit. That's, uh, you sound eerily like my best friend,

real estate. I, yeah. Yeah, I can't, I can't, tenants can't ask me things because I will always say yes, because I'm a softy as well. And so I created systems of people. people who say no for me. It's insulation.

That's exactly what you mean. I lost lots of rent because I let people fly because they're a mom or whatever it is. Yep. It hurts. All right. Next question. For Mike Nelson in Miami, does anyone have any tips to get hard money lenders to fund your deals? A little about me.

I have a background in construction. I've done one flip, which was a big success. I also know a couple of good listing agents. Thank you. You know, for me getting my first capital was really just a, you know, so I got my first loan through a local lender, they just wanted 20% down. And so for me, it was really finding the 20% down was the harder part. I just had to make sure every property that I presented that person with had a really detailed out plan, not just construction, but I covered all different angles.

Like, hey, if I'm going to flip this property, here's my backup plan in case this doesn't flip. I'm fully pre-qualified. I can get a loan for this amount. So I always wanted to give them a really good exit strategy on it. If you're doing a flip, one other thing you can do this worked well for me, especially in the beginning, was bringing in an equity lender at that point. That's where I will bring an equity lender just to build my track record because I really wanted to have 10 to 20 deals under my plate so we could kind of get it ramped up. But I didn't have the 20% down for all these deals. And so it was, I would give him way more equity in the first couple because then they saw it was a little bit less risky. And then they wanted to be involved again. And I actually gave him

less equity as time went on. So it went from going 50% to 25% to then just borrowing money at that point. And then as a first time, Flipper, the most important thing I can tell you is don't spend your profits. Save your profit. It's really easy to get your first check and just blow it. Save it, because then you don't have to bring in those equity partners. Like it saves you so much money down the road. That's terrific advice. Really, really good. Yeah, I know a lot of people, they flip a house. I mean, my very first flip I ever did, I took the money and I paid for my wedding, which wasn't a bad use of the money, but like I didn't have anything after that.

I was like, well, that went, now that's gone. And now I'm broke. And so like, do you feel like a princess for the day, though? I did. I felt like a princess for the day. It was all worth it. It was all worth it. All right.

That was great. That was great answers of the fire round. And now let's get to the last segment of the show. It's time for our famous four. All right. These are the same four questions. We ask every guest every week here on the podcast. But before we ask James,

those questions. Let's hear what's going on this week over on the Bigger Pockets business podcast. Hey there, Brandon. This week's guest on the Bigger Pockets business podcast is Cody Berman. And I think your listeners are going to love this interview. Cody walks us through every step of how to bring your physical product idea to life, from design to manufacture, molds, prototyping, everything you need to know to get your physical product to market. So check out this week's episode of the Bigger Pockets business podcast. And now back to your famous four. All right.

Let's get to the famous four. Number one. James, do you have a favorite real estate related book? You know what? My favorite book that anyone's ever given me is not that real estate. It's how not to be a dick. That's a book.

That's a book. I got in my drawer right here. That's funny. My, my point gave it to me. Brandon's going to send me that now. Yeah, I'm going to send everyone that cut.

You know, I started with Rich Dad. Poor Dad, Poor Dad, way back in the day. It was just, it was the first book that someone gave me when I was 21. Most of the reading I do is actually more economics now in conditions and in actual, like, strategy, because my strategy is based on market conditions than anything else. It sounds like that book might be the 2019 version of how to win friends and influence people. Do you have that one?

We can trade. I'll trade out. There's more and more books. That's more PC name. Yeah, there's more and more new books with like the really like titles that are just. Yeah, there's like a dozen books with the F word in its bookstores right now. Like at Target. The subtle art.

Yeah. That was like the first one I think. And now there's like a dozen of them. I see it every time I go any book store. I thought they were joke books. But I did, but they're actually real like published actual edited, you know, legit books to sell a lot of copies. The subtle art was actually a fantastic book. Like I never would have thought so.

I would have thought it's like a bachelor gift or something like that. That's funny. It's called the subtle art of not giving an F. And then they block out the F word. It'll make a great compliment to the book you just mentioned, James. You need to get it. We can start a book club. Yeah.

All right. I'm still having trouble concentrate because I'm picturing Brandon in a wedding dress. That is his wedding. All six foot five of them bearded up, like looking perfect. I only had a goatee at the time. So it's okay. Not quite. It was goatee, Brandon, not beardy Brandon.

Poor Heather. That woman is an angel. All right. Cheers. Next question. What is your favorite business book? My favorite business book that I read and I still, it was actually called the sales Bible. And, you know, as a young salesperson, like I really wanted to learn on how to handle objections

because I was trying to negotiate a good deal. It all starts with a good deal, right? And so that helped me organize all my, how I did sales, my follow-up methods. Because, you know, following up is the biggest part of. sales and it taught you how to do objections, follow-up method. And it just, I remember I read that book like five times in my first year because I was getting nowhere. And it just kept kind of helping me through. That's a nugget. This follow-up is where it's at. People, they don't realize that. They send one round of direct mail letters and they don't get a reply. And like, that didn't work.

I had a new agent on my team that went door knocking the other day. And she's like, I've been door talking twice in a row and I haven't found one person to sell their house. It's like, what are the odds that the moment you knock on their door, they're going to have been, oh, actually, I do want to sell. You have to keep doing it. That's the whole point is you get a relationship you build and then eventually that starts to feed you. But I see so many people that start off on that journey of lead generation looking for leads

and they only hit somebody once. It's like you're looking for a tree that will fall down with one swing of the axe. That's what you're looking for. You know, you have to keep chopping out eventually to go down. So that's very good. Yeah. I used to knock 30 doors. day five days a week that was my minimum but how many i bet a lot of those deals did not come from the one door

they were consistently talking to the same people and and letting them know you were there and saying hey i want to buy your house right yeah and then just yeah you mark the hot leads you'd be like oh this one's beat up this one's neglected and then those ones i would go back to weekly make it a funnel that's exactly yeah and you bring them gifts you can bring them all sort like whatever thing they liked i was going to bring them like whether it was a beer or cigarettes or food or whatever was i'd drop by and I think we need to have you write a book, man. This is some really, really good stuff. That's awesome.

Yeah, how to buy real estate without being a peep. All right. Next question. What are some of your hobbies? I'm a big, so I like boating a lot. I can spend a lot of time out in the water. My kids are top priority for me. So anything kid related on the weekends, I love hanging out my kids.

And then I'm just kind of a fitness person in general. Like, I'm a firm believer. If my body feels good, my mind works better. So anything active, like if it's weight board, or working out. Like I said, I'm relocating in California a little bit just to be out in the sun. I'm not surfing.

Just anything active. That's awesome. And Seahawks football. I'm a huge Seahawk football fan. So are you going to change when you move down to California? I'm flying back for every game. Oh, yeah. I usually go to about four or five away games, too.

I love, I don't do much much football is my thing. Football in real estate. There you go. That's cool. Four, God, that was a rough day for him. All right, number four, what do you believe sets apart successful real estate investors

from all those who give up, fail, or never get started? You know, I think the biggest thing you can have as an investor is having integrity and doing what you say you're going to do. And that has gotten me so much deal flow over the years,

like building that representation and then telling, if I'm going to do something, I tell it to them and I'm going to stick to that no matter what. And that reputation alone gets me so many people coming to me to bring me stuff because they know if I tell it to them. I'm like, you know, and I always give them logic with my answer, give them logic. And then I just, you know, and I bought properties that I told yes on that I ended up not really wanting to buy. And I did it just to keep the relationship going.

But yeah, those, you know, a lot of times people go for like these like specialty like, oh, you know, as a real estate investor, like get a niche, do these things. But core values will always make you stand apart. I agree. I've done the very same thing and it always comes back. And I think Josh Dorkin was actually a big proponent of that as well. Just you have to be a person of your word. And if you're not, you're not going to be in business long. That's definitely been the case.

All right. Well, James, I have thoroughly enjoyed this. I had no idea that you were this smart because you're like I said, you're very humble guy. You don't come across like I know at all. But the more you talked, I'm like, oh my gosh, this dude's got it together. We got a really good guest here. For people that want to find out more about you and learn to be. you, where can they find out more about you?

Well, my social media is, so actually I will do daily or not daily, but weekly videos. I mean, visiting sites looking at things. My Instagram handles J-D-D-A-N-F-L-I-N-F-L-I-P-S. Or our company website is www.h-H-W-W-W-N-D-A-N-A-N-R-D-R-D-R-D-R-D.com. And that kind of go. And we do a bunch of, you know, just investor tool helping things there. So it's all, it's all free.

And our goal is just always get back to the investment community and it pays back. So great. I love it. Love it. Super cool. And of course, we'll have links to all that at the show notes. And you can check it out there. I'll have links to all those good things, including your social media and all that.

So definitely follow James. Check them out. Check them out. And with that, I guess we'll get out of here. David Green, you want to take us out? This has been fantastic. He is J. Dane flips. Brandon is Beardy.

Brandon. I am David Green 24. Follow us on Instagram to keep up with our journeys. Thank you very much, James. This has been an awesome episode. And this is David Green for Brandon, the beautiful bride Turner. Signing up. Thanks, guys. You're listening to Bigger Pockets Radio, simplifying real estate for investors large and small. If you're here looking to learn about real estate investing, without all the hype, you're in the right place. Be sure to join the millions of others who have Benefit it from biggerpockets.com. Your home for real estate investing online. Do you ever notice how every passive investment

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