2024 Deals We’re Doing with High Cash Flow and Rock-Bottom Rates (4.75%!)

Dave:

Have you been thinking that with current market conditions, it’s a bad time to get into real estate? I mean, we do have some real challenges, like high mortgage rates, there’s inflation and low inventory. But on today’s episode, we are going to share how it’s still possible to get started in spite of the market with some real life examples.

Dave:

Hey everyone, my name’s Dave Meyer and welcome to the BiggerPockets Podcast. I’m your host today and I’m also gonna be joined by three of my friends, three very seasoned investors from the BiggerPockets universe, Kathy Fettke, James Dainard, and Henry Washington. And we’re doing this show sort of panel style because at least for me, I always find that I learned the most about investing or anything else, just sort of having a casual conversation with some of my friends. So I’m bringing on these three investors to talk about deals that we’re actually doing right now in today’s market. And I think you’re gonna learn and see that a wide variety of deals are still possible despite today’s challenges. Before we get into the show, our bigger news episode today is brought to you by Rent app, the free and easy way to collect rent, learn more at rent.app/landlord. So that’s what we got for you today. Let’s bring on Kathy, James, and Henry. Before we jump into each of your specific deals, I wanna just have a more general conversation about how each of you are approaching investing right now with what we’re calling the big three challenges for real estate investors, which are interest rates, inflation and inventory. So Henry, let’s start with you. How have you adapted your strategy this year in spite of these challenges?

Henry:

Uh, it’s all about just changing your underwriting or adjusting your underwriting, which is something that investors should be doing. Uh, regardless, like no matter what the market is doing, there’s always gonna be something that’s changing in the financial or economic environment and that’s gonna require you to take a look at your underwriting for your deals. ’cause the goal is you wanna find a deal that makes sense in the current environment. And so for us, we are still marketing like we typically do to find, uh, off market deals. And we are still searching through the MLS for on market deals. What’s changed is what we’re willing to pay. We take a look at recent comps, very recent comps, and that’s how we are determining at what price point we’ll buy these properties. It’s just changing what you’re willing to pay for

Dave:

Deals. And given that you, Henry, this is sort of your thing is like looking at off market deals, finding great deals, are you exclusively buying off market or are you still finding things on market are possible?

Henry:

We’re looking both on and off market, but I’m finding most everything off market right now.

Dave:

Okay, cool. Well, we’ll get back to that. Um, I want to hear more about that. Kathy, what about you? How are you approaching investing these days and overcoming some of these hurdles?

Kathy:

For my personal portfolio and for investing the future, I’ve always had to rely on investing outta state because I can’t invest near where I am. It’s too expensive and one of the best and easiest ways to do that is with new homes. But you know, they’re new, they’re easy to manage from afar, but it, it can be very expensive and it doesn’t cash flow. But one of the opportunities today is to work with builders who in some cases have too much inventory so you can negotiate the price, but you can also have them buy down the interest rate and insurance is lower on new homes. So I kind of get to cover those three things with a new home. With insurance being lower, I can get the interest rate lower and inflation is actually a good thing because the value of a new home tends to go up faster.

Dave:

And you know, we, we said there are three challenges here, interest rates, inflation, inventory, but Kathy, do you consider inflation a challenge or is it just sort of a motivator?

Kathy:

Inflation is a reality that we’re gonna be living with. And I have been living with for the 25 years I’ve been investing. It’s part of what, uh, the Fed is trying to create. They, they have a goal of 2% inflation, so it’s cooked into to our lives. So I see it as a benefit. That’s one of the greatest benefits of real estate is it does inflate and generally more than normal inflation. So you’re kind of staying ahead of that wave. Uh, so I see it as a good thing in terms of investing for the long term and why real estate just outperforms anything else for that reason. Uh, but you know, if the, if the home prices are so high, that’s where you gotta negotiate and try to get those prices down and, and with certain builders who have oversupply, you can do that.

Dave:

Well James, you also operate in a super expensive market in Seattle and one that is uh, pretty tight on inventory if I understand correctly. Is that what you’re seeing?

James:

Oh, it’s extremely tight and we’ve seen it get tighter and tighter the last 60 days for sure. It is shrinking dramatically and rapidly.

Dave:

And are you surprised ’cause over the last couple of weeks at least interest rates have gone up. It’s making what is already a relatively unaffordable market, even less affordable, but nothing’s on the market.

James:

Nothing’s on the market. I think there’s almost a fourth thing in this kind of mixing is the emotion of the buyers. Like, do we buy, do we not buy? And you know, we’ve been really paying attention to what’s going on with the inventory, how many people have been pre-qualified because I feel like the mindset of the buyers out there have changed to where they have fomo, where they’re going, I should have bought 12 months ago and rates are, the market is no longer in a decline, it’s going the other way. And that we have this kind of gold brush coming out of buyers where there’s just way too many buyers for what inventory’s there.

Dave:

Okay, great. And are you still making deals pencil and what’s just like your general philosophy to finding good deals and executing on ’em right

James:

Now? You know, we, we buy everywhere and anything. So, you know, we buy on market, off market. Um, the, the heavy value add we’ve gotten better buys on and um, and we buy a lot of that on market. But really what we’ve been focusing on the last 12 months is terms like how can we structure a deal to put less cash in what is less of a cash suck and we’re really paying attention to the cash outflow on deals and how do we really maximize these returns by structuring the deal, right? ’cause if the margins are shrinking, you wanna get the right terms so you can really maximize that deal. So we’re really focusing on terms on development fix and flip rental property, whatever it is, whether it’s owner financing to make the deal pencil as pricing has crept back up the last six months.

Dave:

And just to, to all of you, I mean I know Kathy this isn’t your thing but, so I’ll just ask this to Henry and James, but are you, because of the interesting conditions, are you focusing more on shorter term holds and trying to flip or are you still doing buy and hold deals as well?

Henry:

Yeah, no, that’s a great question. Uh, I’d let the deal tell me what works the best. I’ll let the deal in my financial situation tell me what works best. Um, we are definitely still purchasing buy and hold. Again, it’s a matter of where’s the property located, what’s the price point I’m getting in at, can I cash flow it right away? If I can and it makes sense then I’ll keep it as a rental. Uh, but a lot of the times because there’s low inventory, I can flip a property and get a great return. That would take me a long time to get if I was just trying to get cashflow out of it because of the interest rates. And so it’s just more of a matter of what are the numbers telling me, where’s the property located and um, and what am I purchasing it for? But we are definitely still buying and holding right now.

Dave:

Same thing with you James.

James:

Yeah, we’re looking at both. I mean a lot of what we’re seeing on, on the buy and hold side isn’t crazy cash flow. But we are buying stuff below. You know, sometimes we’re buying 30, 40% below 2020 pricing and it’s that value buy where we’re going, okay, we can buy this today. Like we just closed on a, a nearly 40 unit in a class A neighborhood and we we’re at 180 KA door that was trading for three 50 to 3 99 a door. Wow. When the rates were low. And so it doesn’t cash flow amazing. But the values there and as long as you believe in real estate, which it does go up over time, this is where you can really crush that deal just by going, am I paying below replacement costs? Am I I getting that massive discount off peak? And then that’s really what we’ve been focusing on the buy and hold side.

Dave:

Alright, we have to take a quick break but stay with us when we come back. We’ll give you the details on actual deals we’ve each done in today’s market. So stick around. Welcome back to the BiggerPockets podcast. Okay, so now that we’ve talked a little bit about some of the general approaches to buying right now, which is, you know, putting less cash in, looking for markets off deals, Kathy’s looking for new construction. We wanted to share with you deals that each of us are actually doing right now, just to give you some sense of what deals are possible if you are struggling to find things right now. And we’re actually gonna sort of structure the way that we’re going through these deals in the order of the least complicated to perhaps the most advanced strategy. And so no surprise with this group here, I will be going first because my deals are always the least complicated <laugh>.

Dave:

And if you don’t know this about me, uh, I do live overseas and so I invest out of state and I am a very passive investor. But one of my goals for 2024 was to start buying direct deals again, not just investing in syndications and funds. And actually just over this weekend I got a duplex, uh, under contract and I am proud to say for everyone out there who’s thinking it’s hard, it was an on market deal that I found from my agent. I paid pretty much the asking price and it is going to cash flow. It’s in a good neighborhood and it was just a pretty straightforward deal. It’s not gonna probably be a home run or a grand slam, but with my timeline, which is like 10 to 15 years, I feel very good about the fundamentals of this market. It’s a great neighborhood in the Midwest. It’s growing quickly, strong manufacturing, job growth. The average tendency in the area is over five years. So it’s a lot of families that come in and stay. And for me as an out-of-state investor, that’s the kind of stuff I look for is low headache, easy stuff to do. So that’s what I got. What do you guys think of that? I love

James:

It. Well Dave, I think you got the deal done ’cause you know exactly what you wanna buy. Mm-Hmm <affirmative>. And that is the key to this market. Like what is your strategy? What are you trying to accomplish? If you go out and look and you have clarity, you can find the investments. It’s, you know, when you hear they’re not out there, but if you know what your buy box is and go source it, it will pencil out. And that’s the the important thing right now, uh, the two to four units, right? The, the financing’s not easy and the buyer pool’s very small right now they’re not transacting ’cause it doesn’t cash flow. It’s a really good asset class to focus on because there’s very low demand, very low buyers because of the rates. And many times, even if it’s sitting stale, you can pick up that, that discount to market on it. And it’s a, it’s a, an asset class that has a wide, you know, as rates stay high for a little while longer, it’s a really good asset class to focus on, put your offers out and, and, and pick up quite a bit cheaper than you could two to three years ago.

Kathy:

Yeah. And and your strategy is the long term, right? When I first started investing, I was buying close to retail and, and local investors would just sort of laugh at me, but it’s like, hey, I’m from outta state. I gotta, you know, I can’t do these flips. It’s hard from out of state. I’m sure some people have figured that out, but I, I didn’t wanna blow it. But now you fast forward 20 years <laugh>, you know, who cares if I paid retail? Like the properties have tripled in value and that’s what people kind of forget is yeah, sure you could get a $20,000 discount or buy nothing because you’re not able to do that. When if you’re really looking in the long term, it’s not gonna matter. It’s not gonna matter. I’m assuming that’s your strategy, right? How long do you plan to hold it?

Dave:

Yeah, exactly. I I, I’m looking to do this for maybe 10 or 15 years at least. You know, I do syndications and funds for shorter turns. Um, those are the short ones for me because I don’t do flips. Um, but I’m trying to build a portfolio of things that when I do personally actually wanna retire, which is still at least 10 to 15 years out for me, that these will be able to replace my income and they don’t have to be sexy if you give it enough time. And that’s my entire approach,

Henry:

You know, I think James is exactly right. If you know what you wanna buy, it makes it easy for you to hone in and know your deal when it comes across your desk or know your deal when you see one, when you’re out there looking. I think what, uh, a lot of people may miss with kind of what you’re talking about here is can you give us a brief description of like, what are, what’s the groundwork you had delay within this market? ’cause now you have a property, right? Somebody has to manage it, right? Like what did you have to do to find the team in order to know that you could buy this property and it work?

Dave:

Yeah, so I, I do have an agent that I work with and who I’ve known actually just personally for a while, uh, in this market. But I did something that I think a lot of outta state investors are hesitant to do. But I actually went to the market before I invested. I met with my agent, I drove around, we toured a bunch of houses. I never actually bid on any of the houses that I looked at then, but I got a good sense of different markets, different neighborhoods, the places that I personally enjoyed spending time and wanting to walk around. And that really helped. And then I was able to find a property manager and a contractor, no property manager I actually just found online, but the contractor or either through my PM or through my agent. And so I’d say it probably took two months to feel comfortable just looking at deals and analyzing deals to get a sense of like what average returns were for the market. And this is now the second deal I’ve bought in this market in the last two or three months.

Henry:

Who would’ve thought you actually go there and see what it looks like?

Kathy:

<laugh>, that was such a great question, Henry, because it sounds like it was so easy. Oh, I just found something on the MLS and bought it. And let me tell you that can, that can backfire. Don’t do that. I so recommend that you understand your market and go there and, and once you’ve been there and understand it and have your team, well then you can buy stuff you haven’t seen because then the inspection reports and all will will tell you what you need to know. But um, yeah, great question Henry. Love that.

Dave:

Yeah. And just for the record before we move on to Kathy’s deal, I probably analyzed 20 or 30 deals on the m ls maybe more before I found this one. It’s not like it’s just, I picked one randomly, but when you analyze deals enough and you get a sense of like what the average returns are in that area, you’re able to spot the ones that are outliers in a positive way. Um, and it just takes that, that little bit of discipline. All right, so moving on to our next level of complexity here. Kathy, tell us about your deal.

Kathy:

Yeah, so same thing. I’m an out of state investor. I live in California. It’s, it just doesn’t make sense here for, for long-term hold for me. I know some people do it and if you just want appreciation, that can be, that could work, you know. But anyway, I do understand this market. It’s just outside of Jacksonville. I’ve been there so many times. So it was easy for me to pull the trigger on a deal that I found, uh, with one of the teams that we’ve been working with, um, at Real Wealth for, for so long. Uh, it’s a $469,000 duplex brand new. We were able to negotiate the price down. Uh, it appraised for $20,000 more. Um, it’s cash flowing about $460 a month. Um, and that’s because we were able to negotiate the rate down to four and three quarter percent. It’s a 10 year loan, but yeah.

Kathy:

And so the builder has to pay that, you know, that’s part of the negotiation. Uh, but if they are sitting on inventory, you guys know, like builders can’t do that. They have loans they have to pay, they have high costs. They’re in the business of selling homes. They can’t sit on it. So if you can, you know, work with a builder who has good product in a good market, but just is having trouble selling because of interest rates, this is where the high interest rates actually come to my benefit is, uh, they, they’re sitting on inventory, they gotta sell it. And at certain there’s certain times of the year where that’s even more true than others. So, um, you know, they just can’t, can’t hold too much inventory. So it’s a, it’s, I I’m super stoked on this deal. Um, and because it’s new, again, like I said, the insurance is much lower so it cash flows better. And um, new is just easier to attract tenants too. They, if I like new, they like new too and tend to take care of it. And it comes with a builder warranty. So, um, I know it’s kind of easy investing and some people want to work harder, <laugh>, but I don’t <laugh>. I just want something that’s gonna appreciate over time. It’s in one of the fastest growing parts of the country too.

Dave:

Wow, that’s super excited. I I’m so glad you brought this one Kathy. ’cause I do think that new construction is like one of the sort of secret gems of investing in 2024 because of this rate buydown and for everyone listening, existing home sales, uh, and the mentality of the seller is so different from a builder. Builders have inventory and the longer they hold on, it’s kinda like a flipper, the longer they hold onto it, the less money they’re gonna make on that. So they are willing to negotiate. Whereas existing homes, a lot of times it’s someone who’s lived in that home for a long time, they’re willing to sit on it for six months or nine months or however long it takes to get that price that they want. So I think this is a, a great example. Uh, and Kathy, I’m curious, like how difficult was it to negotiate this rate buydown or are they sort of offering it to anyone who’s looking at these properties? Um,

Kathy:

It’s an, it’s a deal that we negotiated at Real Wealth. It’s, it’s like we found this builder that just has too much inventory, can’t sell it because even though 465,000 sounds like a steal for me in California for a duplex, I mean <laugh>, we wouldn’t get a garage for that here. Um, you know, for local residents it, it’s really tough because of the high interest rates, especially now being close to 7% and not coming down anytime soon. But they wanna live in that area. So it was more like, we’ll bring you the buyers and we’ll bring you this many to help your problem. And you know, anytime someone’s got a problem and you can solve it, that’s when you get a deal. So it was a certain amount of properties that they were willing to do it on.

James:

Yeah, and I think this, this asset class is kind of no man’s land right now too. And that’s a good place to plan. Uh, because they built ’em for short term rental investors or just investors rates are way too high. You got these duplexes and owner occupants are kind of going past ’cause they want that single family house and because it’s kind of no man’s land, you can pick them up on fairly good buys because that’s the only way it pencils and it’s easier to negotiate with an investor to investor, I can only pay this because this is my cash on cash return. They understand where you’re coming from and so you can actually use your own financials to negotiate ’em backwards. But I think there’s some hidden value in this asset class too, because as affordable housing is becoming a major issue throughout the US and we’re seeing it now, condo off units is a big deal.

James:

Uh, and it’s really catching fire throughout the us Brand new construction duplexes are much better for you to do this on. They’re built a new code, they have a better fire safety rating, they’re more insurable and also they have way better floor plans that are very livable for an end user. And so I think that this asset class, like even in two years, three years, maybe Kathy can even condo them off and sell them separate and double up on some money. It, it’s something that I, I’m feeling people are gonna look back and regret not purchasing in two years because the bill cost is right, the price is right and then there’s major upside with this affordable housing or you know, who knows, buyers might have to buy a duplex just to own a property.

Henry:

I just bought two single family homes, brand new construction from a builder who needed to get out of this smaller project and get capital into a bigger project. And I literally took a note right now to have my, uh, to have my acquisitions manager start reaching out to builders with excess inventory. I don’t know why I didn’t think about that sooner, but I walked into two brand new houses, about 30 grand off of each one. They don’t cashflow great, but the, that the maintenance is so much lower that you kind of pick up some cashflow there. It’s a, it’s a great idea.

Dave:

Yeah, this is such, it’s it’s very smart for, for buy and hold and a as you’ve all said, just the, the lower maintenance, the optionality with condom condominiumizing. God, that’s a, that is a hard word to say. <laugh> <laugh> condominiumizing

Kathy:

Didn’t even know it was a

Dave:

Word. Uh, I don’t know. James, did you make up that word?

James:

I have Jimmy makeup word sometimes, but I think that’s, I’ve been using it and it’s making money so it’s fine. <laugh>

Henry:

<laugh>.

Dave:

So we’re sticking with it. All right, great. All right. Well Kathy, thanks for sharing that deal. Let’s move on to Henry’s deal. What are you working on

Henry:

Man, every time we do one of these shows I’m like, I am just gonna bring them the same old same that I’m always doing, but it’s Hey,

Kathy:

That same old, same is working though <laugh>. It’s, it’s working. Why would you change it?

Henry:

Absolutely. Yeah. I just went under contract, uh, on a single family home and, uh, I, we close on it today actually. So it is a single family home purchase price of 140,000. It needs about a $45,000 renovation and we’re gonna look to sell it for about 265,000 if you consider my closing costs and my commissions of about 18 grand and then holding costs of about 12 grand. Uh, I would look to net somewhere between, you know, 55 and $65,000 as a, as a profit on this. This is, it literally came across my desk a few days ago. Uh, I say it came across my desk. It’s one we’d been working on for a while. So one of the ways we generate leads is through marketing and we get this lead from my title company. I tell my title company, if you see landlords that are selling off their portfolio, so if you see the same landlord selling something multiple times, then would you mind, uh, seeing if they would be willing to talk to me?

Henry:

’cause I would love to be able to buy their properties. And so I, she connected me with this landlord who had been selling off a couple properties. We went to lunch and I said, Hey, uh, what’s your strategy for selling these off? He wants to do maybe one every couple of months over, over the next couple of years. And so I said, well I’d love to, I’d love to get first look at those and kind of get you your money quick. And so I’ve bought now two properties from him, but this one came from somebody he knew and his network that was gonna sell and he didn’t wanna buy it. So he passed the lead to me and then I just had to stay following up with this person probably for about eight months until they were ready to do the deal. And as soon as they said they were ready, I went and had it under contract and I don’t know, less than three hours <laugh>. So, um, it’s just a matter of making sure that you let people know who you are, how you can help and uh, what your buy box is. And then when the lead comes, you gotta jump, you gotta make the moves quickly.

Dave:

Henry, before we jump into the details, I just wanna talk about your acquisition strategy here. ’cause you had mentioned that you’re finding most of your deals off market right now. Is this strategy representative of something that you’re doing a lot or you think other people can realistically get into?

Henry:

Yeah, I think anybody can find off market deals. There’s a bunch of different methods to find off market deals and they all work. It’s just a matter of you have to find the one that you can afford to fund appropriately. And when I say fund, that means you’re either gonna spend your time or you’re gonna spend your money, right? You know, Kathy found a deal that didn’t cost her any money to find, but it cost her and her team some time, right? And so you just have to research the strategies, figure out what they cost in terms of money or time, and then pick the one that you can afford to fund with one of those two assets that you have. And then you just apply it relentlessly consistently. This one didn’t cost me any money. It cost me time. I had to let my title company know what I was looking for, which was landlords selling off their portfolios. If you see them, can you introduce me? Then I had to go to lunch with somebody a couple of times. I had to send some text messages and stay in contact and then that turns itself into a deal. It took, like I said, probably about eight months. But that means it’s, it’s work that you have to do. Anybody could have done what I did to find this deal.

Dave:

And if you do that long enough then it’s not like waiting eight and eight months. Right, exactly. You know? Right, exactly. It’s like you do this, this so many times that they start to hit every couple of weeks or every couple of months and you sort of have a system for it. ’cause if you’re thinking, oh, I don’t wanna wait eight months, well if you start now, then you know, before you know it, you’re gonna start generating leads. But you can’t, you can’t force it. You just have to put that time in

Henry:

It’s relentless consistency.

James:

Yeah. When inventory is light, just ask the question. Whoever you talk to, do you know anybody that wants to sell property managers, title reps, your neighbors, when you go buy a property, every time we buy a property, we go ask everyone around us. Do you wanna sell? Yes. What brokers? We reach out to brokers. Do you have, uh, sellers that want a transitionary sell, that want time? Patients that inventory’s hard to find? Do they want time to go find the house and then we’ll close that convenience. Is it a landlord selling off property over time? Uh, what Henry did is it’s awesome. You’re, you’re building a pipeline of purchasing. I did the same thing with a large builder in Seattle where I bought nearly 25 homes over him over four years. And he always calls me first. ’cause we’re dependable. It gets him what he wants. He knows who he’s dealing with. And you know, in that excuse of, I can’t find a deal where you’re not asking the question enough and and just ask the question, reach out, explain what you wanna do, and inventory will come in.

Kathy:

Yeah, I absolutely agree. Same, same thing with the new home builder. You know, they don’t wanna lower their prices because that’s a new comp, right? And they’re selling more of them nearby <laugh>. So when you can say, Hey, instead put that money towards buying down my rate, it kind of keeps the, the price higher for them, uh, for future sales. So, you know, again, negotiation is all about finding out what the other person who has a problem really needs.

James:

When you’re looking at a property, whether you’re a retail or investor and, and there’s new construction going on, call that broker. What considerations got made because they do pack considerations in to keep that price up. You might be missing out 20, 30 grand in credits just because you’re not asking that question. So always dig into that.

Dave:

So far you’ve heard about my on market duplex, Kathy’s new construction and Henry’s flip. And right after the break we have James’s more advanced deal, but stick around ’cause you’re gonna wanna hear what he’s up to. Welcome back to the show. All right, great. Well let’s move on to our last deal, which I think is gonna be the most complicated, but James, let’s see what you got and we can see if we, we rank these appropriately.

James:

You know what, it’s, it’s really just cutting up a deal. Um, you know, so we, we flip homes, we build homes, we buy apartments, we, you know, we do a little bit of everything in in the Pacific Northwest and, and we don’t really care what it is as long as that pencil’s out. And

Dave:

Because it already sounds complicated,

Henry:

<laugh> it’s not as long as it’s got the juice James Dainard’s in, I want

James:

The juice. Uh, but it, so you know, we locked up this property prior to interest rates shooting up. Um, it was a piece of land in Kirkland, Washington. Uh, we got it through cold calling just through uh, people at high equity that own their properties. Uh, for 50 years. Uh, we use a easy button lead so we can call thousands and thousands of people a month and it just generated a random seller lead. And what it was, it was in a primary at Kirkland, we got in contract at 1.35 million. What this seller, um, not paying the commissions out. So total basis was about 1.4. We were going through a permit and we were permitting a 5,000 square foot house that was gonna be worth about 3.5 million at the time. Now once rates shot up, the market compressed and the value dropped down to three really quick.

James:

’cause there was this emotional drop as we were getting close to having permits issued. And so what we did is we contacted the seller, they also were aware that interest rates went up and we said, Hey, we have a problem with this deal now because everything’s changing. And we were honestly willing to walk away from earnest money even though we had almost a permit in hand. Wow. But instead we talked to the seller, we found out he wasn’t in a hurry to close, he just really wanted his high price that was more gonna be beneficial for him over the next 10 years. And we renegotiated to close on permit and then we re permitted the property for three DADU’s. And the reason we wanted to do that, that’s a detached dwelling unit. So they’re like micro town homes on this lot. Uh, now you can’t build town homes on this lot, but you can build detached structures.

James:

Um, and the reason we wanted to do that was more affordable. The target price on those at the time were 1.35 million each. And so the reason we wanted to re permitted it, it went from a value of 3 million up to 3.7. And so it gave us a lot more padding in our deal. Now luckily the market with affordable has gone up even more and now we have a combined value of almost 5.25 on our property that we negotiated to close on permit. That means the day we close we can get a construction loan, we can start building tomorrow and we can be in and out of this deal in 12 months rather than buy it, develop it, permit it, and then build it out which takes twice as long. Um, and the better thing about this deal now is we were able to reper it, increase the value up dramatically. And there’s a lot of investors right now sitting on the sidelines with cash that wanted to get up to work. We were able to raise all the money for the deal so we no money in the deal and we have five to 600 grand in profit and a very, very high demand competitive market with almost no inventory. Wow,

Dave:

That’s awesome. I just wanna reiterate for everyone just to make sure everyone understands what you did James, and correct me if I’m wrong here, but you had a property under contract but the economics of it changed, right? Interest rates changed, inventory changed the market was no longer what you wanted and what you did was went and renegotiated with the seller to get it so that you could close on permits. And I’ve never done a development deal, but from what I understand, the idea here is that rather than buying something then getting approval from the city to go buy it, which just sucks up time and holding costs and all that stuff, you’re basically saying, Hey seller, you hold onto that property until I’m like ready to go. So that way once I buy it, we can put shovels in the ground the very next day. It reduces your risk and hopefully increases your profit. And so that was one thing, but you also changed the, the plan from just uh, doing a high end home to these detached uh, ADUs, which really seems like a great PLA way of just like taking what the market’s given you right now. Like you said, affordability was doing well and um, it it, do I have it right? Is that exactly what sort of what happened? Yeah,

James:

We switched the plan, how we closed on it, our timetable and the deal and then what we were going to sell. ’cause you know, as developers and flippers, we want to sell product that has the most amount of buyers there. There’s a lot more buyers in that price range in that local market than there is three and a half million. You know that that saying of you play in traffic, you get the most amount of hits, that’s where you wanna be as a flipper developer where you don’t wanna go into no man’s land, you know, that way I don’t have to sell product to Kathy as a duplex. It’s go to where the buyers are and that’s why we wanted to reper it was safer, more buyers. That means more transactions are getting done.

Henry:

It’s super creative to think about what are some of the, the ways we can pivot and monetize a deal that we have on the table. I think one clarifying question I have is you switch to a strategy of building the detached additional dwelling units and it was, it was my understanding that the ADU is for additional dwelling unit, meaning there needs to be some original dwelling on the property so that you can get permits to do the additional units. But if this was a piece of land and there was no main dwelling, how do, how do you build additional units?

James:

That’s a great question. It’s all about reading the code. So what you can build on a single family lot in Washington now is we can build a single family house an ADU house and a detached dwelling unit. So that means we have a house that’s attached by the micros of walls and then an ADU and A-D-A-D-U. They are all the same size. They don’t have to be different size ’cause it’s more about lot coverage. And so it’s really about reading the code. No, having a good architect team, that’s why it’s so important to build your team. What is going on in today’s market? How can you maximize it? And also we were able to secure this deal before this strategy caught fire. ’cause in today you would have to pay 1.7 million for this lot, not 1.35 with what’s going on. And so stay in front of the trends and that’s how you can hit home runs because you know, it’s, it’s, again, no one’s really looking at it when you, when no one’s looking at it, you, you take big swings.

Henry:

So to clarify, you contracted the lot before the strategy was super popular. So the lot value was lower then is what you’re saying. And then in order to get this strategy across, you’re essentially building a main house that’s the same square footage as the other houses. It’s just that one of the ADUs has to be attached to that main house and then you have a detached dadoo. So three units total, is that what I’m hearing? Yep.

James:

Three units total. And it depends on your coverage and it’s even better if you can get a big lot subdivided then you get six. We do that in Seattle. We got two projects like that going on. And so it’s all about density, density, dumps, dollars, smart. It’s uh, super smart. It definitely helps you maximize it

Kathy:

And this kind of thinking is what is needed to solve the affordable housing crisis. I love it. And the idea of negotiating with the seller to get the permits first. We’ve done that on raw land. It’s even easier with raw land ’cause it’s so hard to sell it in some cases. Um, that you know, and you don’t wanna buy it without the app, you know, knowing that you could do something with it. So being able to have that kind of negotiation in advance of like, hey, I’m not gonna close until I’m able to get these permits or the zoning changed. It’s great. Love it.

Dave:

Alright, well James, you were, was the most complicated. Let’s <laugh>, let’s be honest. <laugh> very, very enlightening and for those of you who have this skillset could be an awesome, uh, approach to investing right now. But all of you, this was so great. I, you know, for everyone listening, we did not plan this out this way, but it, I think it’s really cool that each of us brought like pretty different strategies but relatively all achievable strategies. So just as a recap, like I did an on market buy and hold duplex. Kathy also did a buy and hold duplex, but she did new construction and was able to buy down her rate to improve her cashflow position. Henry’s doing a flip that he sourced in an extremely creative way and James did a really interesting pivot on a development deal that is going to sounds like is going to turn out great for each one of us.

Dave:

So hopefully this shows you all that finding good deals right now is one, a matter of persistence. It is not as easy as it once was. You do have to put in that time and effort. But it’s a lot about understanding your own strategy, understanding your own market, and then just pulling the trigger when you find what you’re looking for. Alright, well thank you all so much. Henry Washington, Kathy Fettke, James Dainard, we appreciate you all joining us here today. And thank you all so much for listening. We’ll see you very soon for another episode of the BiggerPockets podcast.