Last week James Dainard, co-founder and managing partner of Heaton Dainard joined the team of the Bigger Pockets podcast to talk about his investing strategies, how he fell in love with real estate, and the keys to his success on episode #338: From Red Robin Waiter to 250 Units (Using the MLS!) with James Dainard.
Co-hosts of the podcast, Brandon Turner and David Green, opened the hour and 20 minute conversation with high accolades for James, proclaiming him as “The Gordon Ramsey of real estate.” While the entire podcast is filled with over 10 years of knowledge built through experience, we’ve outlined four of our favorites below!
Know Your Skillset
James began his real estate career knocking on doors, trying to convince people to sell him their houses. He didn’t know anything about the industry, and he was largely unsuccessful at the beginning. Starting from the ground-up James was soaking in as much information as he could. When he had the opportunity to invest in 2006, he jumped on it.
“It was a 2001 built townhome…really good condition. At 23, I just knew I really didn’t know how to renovate a property.” – James Dainard
James chose to invest in a newer home, that needed very little work because he didn’t have the skills for a larger project at the time. He knew how to find a good deal, but very little of what to do with it once he had it.
“I’m a firm believer, if you’re a newer investor, don’t bite off more than you can chew.” – James Dainard.
Choosing the right deal is far more important that choosing a good deal. Finding good deals is an easier task than finding a good deal that is right for you. It is easy for newer investors to chase after a good deal, then it quickly turns into a nightmare because it was outside of the investor’s skillset. Stick with what you know, and learn from the things that you don’t know.
Develop Your Systems
Many people jump into real estate because they see the purchase price and then the sale price. New investors can be dazzled by the numbers and don’t understand the start and finish are the easy parts, the real profit comes from what you do with the middle process. Good deals aren’t based on luck, you can create a good deal by putting in the work, crunching the numbers, and adapting to what the market is looking for. James stressed the importance of the first flip for laying the groundwork for flips in the future. When James first started investing, he stuck with condos, because they required little maintenance, HOA’s took care of the exterior, and he was building his process for the interior renovations. Once he felt confident with condos, he slowly began investing in bigger projects. Working with his business partner, Will Heaton, they began taking on better deals that required larger renovations, longer timelines, and more opportunities to learn from mistakes.
For Will and James, they began flipping in 2006, in 2008 they made the decision to launch their own business, and by the time they flipped their first home in 2009,
“That was right when the market just fell off a cliff. During that time we were starting from scratch.” – James Dainard
James and Will had been building their systems, and they were able to adapt their strategy. The duo saw opportunity where many real estate professionals felt they were swimming in a wasteland of financial losses. The market was saturated with great deals, they began buying homes and doing minor cosmetic flips. Each flip they budgeted carefully, making sure to add extra touches to make the house slightly nicer than the competition and then expected each home to to depreciate 10-20% by the time it was ready to go back on the market. Despite the losses, they were able to start making a profit.
“A lot about real estate is just adapting to the market and you’ve got to put together your systems with whatever’s going on in the current market conditions.” – James Dainard
Look Beyond the Paycheck
As a first time investor, James had a unique opportunity to see beyond the initial profit of a home, to look for the long-term options of his purchase. On his first flip, his townhome began cash flowing him $250 per month.“Real estate’s about building wealth, not just making income, and you can do both. If you just rely on checks, you’re going to run out of checks at some point.” – James Dainard
Even now, James and Will invest 30% of their flip projects into long-term cash flowing properties which have allowed them to go from 10 doors to over 250 doors in just 10 years. James and Will firmly believe in looking at the big picture of investment, the numbers can look great right now, but what will those numbers look like in 10 years? What will those numbers look like if the market takes a turn? Plan your investments to weather the storm of real estate and plan for all types of markets. Most importantly, plan beyond the immediate paycheck, and let your money work for you, instead of constantly working for your money.
Build a Reputation on Integrity
Heaton Dainard came from the toughest time in real estate, it is a business built on pure hard work, dedication, and creative thought. Being savvy businessmen and investors has brought Will and James into the investing arena, but their commitment to integrity has kept Heaton Dainard on a profitable track.
“The biggest thing you can have as an investor is integrity. Do what you say you are going to do. That reputation alone gets me so many people coming to me to bring me stuff because they know if I tell it to them, and I always give them logic. I’ve 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. Core values will always make you stand apart.” – James Dainard
Click here for the full podcast with more insights on real estate investing from Brandon Turner and David Green. They’ll grill James on his unconventional investment strategies, deals that have gone wrong, how he looks to the future in his investments, and what’s on his bookshelf.