Sourcing a Deal Per Day with James Dainard (Pt 2)

Cole Ruud-Johnson (00:00): What's up guys? Welcome to part two with James. Dan here live from Belize. We're gonna be talking all about his acquisitions and dispositions process right now, as we always do on the off market operator and part two, but part one of part two, we're talking about your journey going from H to O to A, which is hustler to operator, to architect. So we just talked about your whole origin story. So now we kind of know who James is, how he got to where he is, but for you and your companies now, give us a quick two minute rundown of how you went from Hustler, being the guy to door knocking to operator, being the guys that has some teams now architect, you know, being able to sit here and Belize and have multiple companies running. Just a quick two, three minute thesis on the changes you had to make going from the A to Z on that. Going from, again operator, sorry, from hustler to operator, architect, and then we'll get into the actual acquisitions and dispositions. James Dainard (00:48): Yeah, so how we made that first, how the first scaling thing I ever did was I was knocking doors for a good probably 18 months and I got really good at closing at the table. Like my c my closing rate was over 50% if I was at that table. Which was high for what we were doing. And, and, and how we actually got, there was some, another story is we just built the, instead of what a quick little tangent. The, the way to get there for us was about looking at what we were doing, finding out what the seller's needs were not about money. And once we created that need, our conversion rate went through the roof. Mm-Hmm. . And so that was our first system. We set up scale. It was like, let's set up complimentary people to help these people with what they need, a moving company, credit repair, a new place to live. (01:31): And we set that up and that allowed us to scale dramatically. And we were doing a lot of different deals, but then the problem became time, if I'm out there cultivating, knocking doors all day, I was banging 30 to 40 doors no matter what every day. Then I had to make time for appointments. Appointments could take me anywhere between two and four hours in a day depending on how long I was gonna sit there and grind. Mm-Hmm. . And that ate up a lot of time, which affected my prospecting. And so what I had to do was I had to come up with the solution, which was get guys underneath me to just do what I was really good at. So it's about finding what you're best at and then hiring around to what is your time sucker, what you don't want to do anymore. Mm-Hmm. . (02:07): And so I went from door knocking every day to then I hired three guys to knock doors for me instead appointments. And it went from knocking doors and mixing in appointments to all of a sudden I was running like seven to eight appointments in people's kitchen tables. Every day I log in, I knew where I had to go when I had to go, but then it was about getting organized with my sales guys and that was sending 'em over the lead flow, making it very mindless for them. Like when I got started it was, I had to do a lot to figure out the process. So I gave 'em the process in a box and we started cultivating sellers at that point where the big transition went is that where, that was the first big transition because I went from being able to do like three deals in a month cuz of time to going to eight that produced the revenue to start buying properties and starting, you know, the every step that I can make that creates more revenue, that gives me more Gump powder to systemize my business. (02:56): And so the biggest tip I can always tell people is don't spend your profit, save your profit and reinvest it. We, I reinvested most of my profit for the first 10 years of my, every time I'd make money, I'd invest into a system, a process or a property at that point. And so it was about doing that first system and once I saw that work, I was going, I can do this to nu numerous different ventures down the road. Mm-Hmm. , how we started scaling and doing a lot of other things was we had to pivot our business when 2008 hit. Just finding a good deal didn't mean you were gonna get paid anymore. Mm-Hmm. . And so we had to figure out how to maximize those deals and, and, and, and part of that because no one wanted to buy, but we could get an even better deal than we ever saw before. (03:39): We had to get system and hired up to start buying these properties mm-hmm. and teaching us that way. And so that was about figuring out, okay, what's the goal? How do we ize it? And then what do we need to do to do that? Well first thing is we had to go find construction teams and, and hard money resources. And so we had to plan another business around that mm-hmm. . And then from there it was about doing one and then doing two. Then it was doing five and systemizing to one point we were up to 120 active rentals at one time. And so it's about taking those steps, active flips, active flips. It was actually a miserable time of my life, but we were doing it. And so it's about just doing that for, it's about getting in, doing that first deal, doing that first transaction, seeing what you did Right. (04:23): Seeing what you didn't do Right. Do it again. Yeah. Then go, okay, this got a little better. And then go, well how do I reduce time? So I'm always trying to focus on how do I reduce time so I can go do more things For, as an entrepreneur, I can't be handcuffed to one business. I don't wanna be a one trick pony. Mm-Hmm. , I wanna be able to hit multiple different income streams. I do that by hiring the right teams below me, systemizing it. Well I do that first by doing it myself, figuring out the process that I want done and then hiring below that. Cole Ruud-Johnson (04:48): One thing I noticed about you that what we do too now just naturally is every business is vertically integrated. So like for myself, I had the whole selling company that spun into you know, getting on bigger pockets, just went into coaching, which spun into the call center. Everything was like one aspect of one business. I would solve that problem and realize, oh, other people need this solution. You know, you guys in hard money, you guys and your, your construction, how you help investors, all that kind of stuff. I've noticed the same thing. Like most businesses, you start at least that you're crushing from what I've seen, I've been like a spinoff or an aspect of one of the other companies that you might mastered. Yep. And took the market. So that's super powerful for anyone listening to this. And just knowing what parts of your business you've truly mastered and those can become very successful spinoff businesses instead of just saying, Hey, I'm gonna go try e-commerce or stock trading or a random thing you have no experience in. So now let's get into acqui acquisition side. So heat and Danner, buck buys houses. What is your guys' like acquisition thesis? What do you target? How do you know what you're gonna buy internally for like multi-family versus what you're gonna flip or sell off? What does that look like? And then give us some like tactical steps on, you know, what's working right now on the acquisition side in terms of, you know, procuring leads, procuring deals, off market or on market. That strategy as well. James Dainard (05:56): Yeah. We're, we're that don't care where the deal came from. Okay. And so for us it's all about margins and setting what the expectation should be for an investment. Mm-Hmm. . So we like to move very, very quickly, whether it's on market or off market. We do this by kind of evaluating the market, seeing what the returns are, seeing where the protection is. And then we know, like we don't go and ballpark a number on a house. We go based on what this product is, we need to buy this on this return. We don't care what it's listed for. We don't care what the, the person's asking for. We work it backwards based on everybody at our businesses know that we need this percentage of margin for an investor to buy it. So instead of, and the reason I like doing it that way is you don't get distracted by all these other things. (06:37): It's no, we have to be here because that's how people operate. Yeah. And so we do that by running metrics with our clients. We, we look at what other people are paying, we see where the margins are. It's also based on market conditions. So we write offers we, we spend, you know, we, we work with easy button leads to generate a off market deals. And then we have a sales team that goes there. Typically, on average we're gonna do anywhere in today's current market, we're doing like five to six deals a month off market, which is quite a bit lower. And that's normal for a transition period. Yeah. Typically we're gonna be doing 10 to 15 off market deals a month, then we're looking for more inventory cuz we need to buy 30 to 40 deals a month. Typically. Like that's where the by 30, 40 deals. That's between us as buyers and our clients. Gotcha. We're trying to get about 30 transactions done a month. So then that's Cole Ruud-Johnson (07:21): Beyond the 10. That's 20 to 30 you're buying internally? James Dainard (07:23): Yeah. That we need to buy internally or source for our clients. Gotcha, gotcha. And so then we source that through being on market opportunities, networking with other wholesalers, working with companies like yourself where it's like, Hey, we're good buyers and then we secure those contracts at that point. How we, how we pick. It's funny, that is one of the biggest questions I get. So you, you produce all these deals, you probably cherry pick out all the deals. Mm-Hmm Cole Ruud-Johnson (07:46): James Dainard (07:47): And then my favorite thing to do is when a client says that our potential client says that I pull up all the properties that we're working on and go, would you buy this? No. Would you buy this? No. Would you buy this? We actually buy the leftover stuff because as operators experience operators we like to buy the stuff that freaks everybody out. Mm-Hmm that is the best margin because if, if there's a low demand for it, that means the seller has to sell it for less. And so a lot of the deals that I buy personally myself have been sitting on market for like 180 days and everybody in the whole state that's looking for a deal has looked at this deal but they couldn't quite figure it out or can't execute on it. Mm-Hmm. and then we narrow in on those. And so the reason I like doing that cause a gets inventory to our clients and balances our company out, which, you know, as we've scaled our businesses, the more deals we do when we do a deal, we get a loan, we get a list back, we get a acquisition fee that's three transactions vertically integrated. (08:36): Right. Vertically integrated a deal on Cole Ruud-Johnson (08:38): So many different sides. James Dainard (08:38): Yeah. And as buyers we're going, we don't want to, we don't want to dilute that pool for our clients that would actually be diminishing to that business. So we have to balance it out. So we buy what's hard. So most projects I buy are massive fixers, big equity positions and they take 12 to 18 months to get through a lot of times. And so it's about finding where the need is and plus I fill one of our own needs for our internal, like those are deals that are hard to get done. So we will buy 'em. So it gets us more transactions that way as well. But with their when we're looking at deal flow though, how we buy is, I don't buy based on location. I mean I do some, some of it's location, price and, and market conditions I buy based on resources today. (09:21): If I don't, whatever my construction teams are good at doing, that's what the deals I wanna go buy. It has nothing to do with cents on the dollar. It's how well I can execute was what I have learned over the last 18 years. I can buy the best deal in the world and I can royally mess it up. Mm-Hmm. because I didn't know what I was doing. But I can buy a slim deal and if I know that deal like the back of my hand, it's in my processes, I can execute way higher on that deal at that point. Mm-Hmm . And so it's about sticking to what you're good at and then as you kind of develop your skills, you can kind of then go, you know, I didn't start with big fixtures, I started with base hits, then in turn doubles, then in turn in triples and then we're going for big swings all the time. And so it's whatever my resources and my talents are. Like right now, my teams are more expensive to reno than probably a lot of investors. They're also higher quality. So we focus on luxury flips because that's what I'm good at doing. Those teams have actually started to slow down a little bit too. And we've had a little bit of issues and we started getting new resources in and they're better at the Turner Burns. So now I'm looking at the quicker deals. Yep. Only because that's my resource there, not because of the market. Makes Cole Ruud-Johnson (10:22): Sense. And a big thing I wanna take out of that and extract for everyone watching this is the mastery and why it's so important to do one thing for super super long time. You've heard 'em say the different ways all of this companies can, you know, monetize one transaction. The reason they can do that is cuz they have the mastery, which brings confidence to go after and do the hard deals. You guys, if you're switching from wholesaling to flipping to development, e-commerce to four x to whatever other new shiny object com business there is out there, you're never gonna have the mastery you need in order to have that confidence. So you can monetize deals, other people can't. And that's what I have a lot of buddies that are very successful in real estate and a lot of times they're, they're buying properties that no one else will touch simply because of that. (11:01): So before we move on to dispositions, James, give us a little bit of background cuz you're like, obviously you do 120 flips at a time. You, you have an understanding and grasp of construction and that process. A lot of people just don't. So give us a quick rundown on, you know, your acquisition team, how you compensate them all the way through your construction team. Are they in-house, are they not in-house? What's that whole structure look like? And obviously it changes with per market cycle, but like what's worked for you I guess best for the majority of your career when it comes to running construction teams? Like people on here that are buying flips and stuff like that? James Dainard (11:33): Yeah, and it kind of depends on the market. So we've ran construction job sites completely different every three to four years. We have to mix it up. Like right now we just laid off or not lay off. We had to reposition a bunch of people around and hire up new for what's going on in today's market compared to what it was for these last two years where it's highly appreciated. Yeah. And so you have to stay with the market when you're building the teams. But the most efficient way that has ever been for me is I usually typically run project managers and general contractors where we, my project manager's babysitting the general contractors. They're making sure they're showing up to job site, their salary, their salary at that point. But then, and then the general's responsible for like 75% of the project and then that PM will plug in cost effective trades for us. (12:14): Like, we'll we'll have 'em plug in simple things like roofs, appliances, cabinets, cuz it drives our cost down. Gotcha. And that work way worked well for me for seven, eight years but then to stop working, the reason to stop working is generals got really busy as generals get busy, they get paid more and they're gonna, they're gonna take more higher paying jobs. Also, as they got busy they were committing to too many jobs. And then if they're committing to too many jobs, my jobs like slowed down and as you're running a hundred projects at a time, if there's a, if there's a hiccup that just stretched, that's how we got to 120 projects at a time. It started slowing down, it went from, it should have been like a 70 door pipeline to and then went to 80, 90, a hundred because it was just things were taking longer and it became cost inefficient because we're paying a project manager, we're paying a general and things were taking too long. (12:59): So once it stopped being efficient, we had to switch things up. So now how we do things is we actually run. Today I actually got rid of all my project managers and we hired general contractors as our project managers. I pay them even more about 20% more than I pay my PMs. But now the difference is, is my PMs on site can actually install and do things and keep the job site moving forward. Mm-Hmm. . So my PMs there, he's, he's putting in millwork and door and like basic stuff as he's running subs through which he's already done over the past. In addition to, by doing that it brought me in a whole nother bench of subs that I basically just bought. And so we, we get access to more subs. I have my subs, the general has their subs and we can keep our costs down. And so that way's been working pretty well for us right now. It does affect the margins a little bit but it's been a lot more fluid with the, the renovation process. Cole Ruud-Johnson (13:49): Love it. Super detailed breakdown. Alright. My favorite part of this, let's talk about dispositions. What, what I mean by that is you went into acquisition process, how you guys have gotten to where you are, what your team looks like, what rehabs look like, how do you select internally beyond just the flip fix and flip deals when you, as you guys have built your portfolio, what stuff you're gonna buy to keep and build your real estate portfolio mm-hmm. Versus stuff you're gonna pass on or flip or sell to someone else. Like there's a lot of deals we've sold you. I know some stuff you buy just cuz it's cheap. Yep. And there's other stuff you buy obviously cuz the, the rate return's incredible. So give us a breakdown of you guys internally how you decide what you buy and add to your portfolio. Not just to flip but to keep long term. James Dainard (14:26): Yeah. And a lot of has to do with scale, right. So like when we first started or we built out our original, I call it my original gunpowder to buy rentals. It was, we bought high high equity position, bird properties. Mm-Hmm. buy 'em, renovate 'em, keep 'em and then we would trade 'em out. Right. So we started with like right around eight to 10 properties and we have now we have almost nearly 1500 doors. So trading that was done by smart, loading up the gunpowder, 10 31 in it, buying another value add, increasing the value, again stabilizing that and then trading that for a bigger one. So we use the equity and the value add as our down payments to grow out our portfolio today. How we do it, because we have that many doors, we primarily focus on larger unit mix anywhere between 20 and 40 for our primary rental buys For our long term we call our run gunpowder properties. (15:13): We're focused on, you know, any, we still buy single family homes but they have to have upside in them. Yep. But we want development upside. We want the extra kicker. Cause what I've learned on my buy and hold in the portfolio, Hey you grow, I'm in a, a place where I don't need the passive income from my rental properties. I have a job for that. We flip homes, we develop, we we bring in income at that point. Yes. So my goal is to get to financial freedom is to have a certain amount of money paying me. I need Gump powder. Mm-Hmm , the ones were the biggest upside, like a single family house that has an L zone or somewhere that you can develop later down the road for the next building. Boom. I know that that's gonna be an equity accelerator. Once we hit that cycle, those properties are gonna four, five x in value. (15:51): Whereas a single family home's gonna be more stable unless they print trillions of dollars at the, the the one anomaly. And so by having that gunpowder, you know, we we're loading up on tho we load up on those as well because it's, it's about balancing your portfolio. We buy the big deals for scale by the big development upside properties for, for gum pattern down the road and then keep 'em in our portfolio. And then personally because me and my partner do that, I hedge against that and buy completely different product personally because I like to hedge against the business. Mm-Hmm. . So personally I still buy a lot of single, I mean we bought a killer duplex deal, right. It had no development upside, which goes against what we do. One, the Queen Anne one, it was literally killer. It almost killed me when it fell down the hill. (16:35): And but I reason I bought that it was cheap at high ha high cash flow and it didn't have all those, the things that we just talked about, the development upside and the, the big unit count, but it was a high cash flow, low cashing deal. So it hedged against what I'm doing here. So like as an investor, when I'm looking at portfolio, I'm going, where are all my chips? How do I move it around? Just like a financial planner. I look at my pie chart and go, what do I need to fill the gaps to make it a long-term growth? If I only buy apartments today that's gonna eat up liquidity, I'm gonna have to bring in equity partners on big deals and it's not gonna gimme that gunpowder to keep growing personally without bringing in partners or leverage. Cole Ruud-Johnson (17:10): Now you just shifted my frame on that for, you know, being newish to real estate. All you hear from a lot of gurus and guys out there is think bigger. Go bigger, go bigger. Run a why do single family if right away you can go buy 300 doors or wide wholesale if you can go develop right away. There's so much of that out there where that's such a key piece for you guys watching this. And you know, building the ladders. You don't putting yourself in a position. There's so many guys that got hammered and lost everything because they tried to make that jump too quick. So I think that's a very, very huge point. Just me sitting here that shift in my frame. Cuz you know, I've been in the mindset too of like, why mess around with buying a single family house when you can go buy 300 doors. (17:45): So I think unless obviously give a big liquidity event, makes more sense to trade the ladder and do it that way. So let's move on to one other question I have for you. So I'm, I was a new agent at Keller Williams when I was 18, 19. And I knew from early on I was interested in the off market space and you weren't big on social media, but I remember sitting in a big Keer Williams meeting with like a hundred agents. They're all older and I was 18 year old. I only, I really only went cuz there was free coffee. I didn't have a ton of money. And so I wanted my three cups of coffee a day and I would cold call expires, I sit open houses and I sat in a meeting early on. I was like, who do I talk to? (18:16): Who's the best flipper? Who's the best off market guy in the Washington? And pretty much the whole room about a hunter real estate agent at the same time in unison said James Daner. And I think even before you had this social media stuff that you do now, you had a brand and a presence in the state of Washington when it came to click fix and flip real estate. Everything that I would say was unlike anything I've seen, not relying on social media. So for people watching this, they're trying to build themselves in their local market as an expert. First off, I would love, love if you could talk about kind of why you recommend staying in your own backyard. Yep. and also how you've built a brand beyond your social media. Cause I've known you before you were even doing the social media stuff, how you built that brand, not around your company but yourself as someone that you know does good business everyone wants to work with and you're the, you know, you're essentially the guy in that market. James Dainard (19:04): Yeah. And that comes down to just reputation in doing what you say you're gonna do and, and also being consistent. Mm-Hmm. , right? Like if, if as a, a wholesaler, a broker, if I'm calling a, an investor and they're hot and cold every six months, oh yeah, I'm ready to buy. And then they're like, eh, I'm gonna set it out for a while. Or I just need to, the consistency is, I was always like, yes, let me look at that. Mm-Hmm. , even if I was overwhelmed, I was gonna go, this is an opportunity I need to, I need, I would never pass on that opportunity. The second thing is we always did what we said we were gonna do. We were always gonna close. I would not retrade on my word mm-hmm. , even if, you know, we've had that before mm-hmm. , I bought it and then I'm like, oh man, this happened, but I already committed and once I commit, I'm in. (19:45): That is not that person's responsibility. Like, and that's why a lot of brokers, we work with a, we own a brokerage, but we work in network with a lot of different brokers because they know that they have their client and they wanna protect that client. And that we are gonna close in a timely fashion and close and not, and not mess with that seller all the way around. And so it's about sticking to your word, having good principles, good morals, and then really communicating with people and just always trying to be of service. Like if a broker from another office calls me for advice, I will spend the time giving you that advice because you're paying it forward at that point. Mm-Hmm. . And if you pay it forward enough times, you build enough relationships, you can have all sorts of different benefits from that. And that's why I am a firm believer staying in your backyard. If I'm in 50 different backyards, I'm not gonna have very good relationships. And I like to know where I'm operating and I wanna build those relationships locally. And I don't want to go build this out 50 different times. I don't have the time for it. So the quality's gonna go down. The more you scale, the quality does start shifting down. Yeah. And so, you know, I don't need to go somewhere else cause we know how to do it here. Cole Ruud-Johnson (20:40): Yeah. And then what a big part of like, the respect the brand comes with firm boundaries. So for guys watching that are doing their first five wholesale deals, their first three flips. What are absolute yeses and absolute nos when it comes to in the marketplace dealing with brokers, dealing with wholesalers? Or what are some things that you've seen that are like a hard no almost that makes you wanna never do business with that person again versus Yes. That's how you handle that situation. Like two or three examples. James Dainard (21:05): You know, the first thing I always do is, is it a training educational thing that we're having issues with which we will spend time training people just to work with them. Okay. Right. We'll, we'll give them the time. Like if we're gonna build that relationship Yeah. We'll invest in you as a person. Yep. Even if you're not our employee. The second thing is what's your, like, are you forthright and upfront? Right? Like if I, if people are sending me things that, and it's just not true. Like if I get a picture link and they're like, it needs 20 grand in work and then, then I will walk there and the foundation's blown out, I'll call and talk to the people. Be like, you didn't even put these in your photos. Right? Mm-hmm. . Cause I don't wanna waste my time. And so people that can't stick to their word, I just won't do business with mm-hmm. . (21:41): my pet peeves in this business are like, when people send me a deal and they're like, the at the starting price is this and they want me to bid up a property off market for me as a traditional, I'm an old school wholesaler mm-hmm. wholesalers about securing an investment, selling a contract. This is not an auction. I can go down to the auction on Friday on bid on stuff. Yeah. I hate that. And, and that just is bad because what that does is a wholesaler is you don't build the relationship. You go, you're important to me if you pay the most. Cole Ruud-Johnson (22:11): Yep. James Dainard (22:11): That is, if I did that to any of my clients, Cole Ruud-Johnson (22:14): You check, you're, you're a walking check at that James Dainard (22:15): Point. Yeah. I value you if you're gonna pay me the most. Whereas I value people because they mean me. The relationship means something to me. There's been plenty of times I've taken less money on a deal to value that relationship. Yeah. Or I've given up on a deal because of value, the relationship. And so that's the biggest thing is, is don't be focused on the money, be focused on the relationships, then the money comes in. And if someone's really just dead set on the money and that's all they're focused on, typically me and them are gonna vibe that. Well Cole Ruud-Johnson (22:42): That's one of the first things you told me and Maui when we first met. And I actually, a similar question I remember was sitting at, I think it was a Hyatt at dinner one night and I sat next to you and I asked you that question like the first day we met. I was like, what's like one thing you tell me, you're like, the five, like a meaningful five minute conversation with someone was much more valuable than you long term than $5,000 in your pocket. Something was something along those lines. Yeah. So that's huge. So thank you guys for tuning in to the off market operator life from Belize here. And James Daner for your time jumping on this and talking us through everything. There's a phrase I like to give out, which is your one deal away from changing your life forever. So what's, you know, we asked you in the first episode, what's something you would tell your younger self? What's something you would tell the audience that's sitting here watching this that's 3, 4, 5 deals in that you think would, would benefit them long term when it comes to sourcing more off market real estate James Dainard (23:29): Grind harder. Shut off the noise. There's so much noise on social media and so many opinions out there. It can get very distracting. Don't get distracted. Figure out what you do well and then go get after it. I mean, we, we didn't get here by working f 20 hours a week. We, we worked really hard for a long time and we stayed focused. If you stay focused and you grind after it, get after it. Don't get distracted by the noise. You will do fun. Cole Ruud-Johnson (23:54): Love it. Well, we'll wrap it up.