AP Photo/Reed Saxon
- James Dainard, co-founder and managing principal of Heaton Dainard Real Estate, looks at real-estate investing through a different lens than most.
- Dainard and his partner have over 250 units and flip over 100 houses a year.
- By leveraging zoning laws, Dainard "hyper-accelerates" his rental property income.
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James Dainard, co-founder and managing principal Heaton Dainard Real Estate, got his start in real-estate investing on a whim.
"I had no training on real estate whatsoever," he said on the "BiggerPockets Podcast." "I was actually going to college at University of Washington in business school, and I was serving burgers at Red Robin."
But all that changed when Dainard's roommate - who was working for an investment firm at the time - offered him a job buying foreclosures.
"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 peoples doors that don't want to talk to me," he said. "Honestly, I was terrible at the job for the first year. I made zero dollars."
But Dainard wasn't deterred by his rocky start in the business - and the lessons he learned sharpened his ability to spot deals.
Today, Dainard has 250 units (10 single family houses, rooming houses, duplexes and four-plexes), flips about 100 houses a year, and made over $1 million on a single deal.
A clever strategy
Although Dainard employs a multitude of different real-estate investment strategies, one in particular stands out due to its clever nature.
"We take single family houses and turn them into eight- and 16-unit rooms next to the University of Washington, any kind-of core school," he said. "We're doing a 60 [unit] rooming house in Capitol Hill right now. We're taking an art building and putting 60 doors in."
He continued: "Affordability is such an issue ... people like shared living."
Essentially, Dainard and his partner are buying properties and carving them up into hostel-esque, shared living dwellings.
Once a property is purchased and completely stripped down, large kitchens and large living/flex areas are implemented, new rooms are segmented off, and a plethora of bathrooms are added. Usually, they'll install one bathroom for every two to three bedrooms.
"It takes a normal deal, and you can hyper-accelerate the return by putting the right plan together," he said.
In Dainard's home market of Seattle, an "SF 5000" zoning distinction means he can legally add up to eight bedrooms to a property. Due to his clever strategy, instead of collecting just one rent, Dainard collects eight.
Here's how his first venture into the space turned out. He said the "flippers" and "rental people" weren't interested in the property at hand.
- Purchase price - $360,000 (asking was $390,000)
- Construction costs (adding bedrooms, bathrooms, kitchens, etc.) - $250,000
- Cash flow - $9,000 per month
"Our cash-on-cash return is astronomical," he said. "If you put the right strategy together - and not just overlook the one sitting there that everyone's overlooking - you can get something that's a gold mine"
Over $1 million on a single deal
"We're always combing through the MLS, and I love the ones that are just sitting there on the market," he said. "The best deals that I find are right on the market."
It's safe to say that Dainard thinks about real-estate investing differently than most. His differing viewpoint allows him to uncover value that most overlook.
Dainard provides the anecdote of a property that was sitting on the market for 360 days prior to his purchase. He says since there was a clear lack of interest in the dwelling, it was selling for "dirt cost" - the cost of the land after the existing structure was torn down. Upon further vetting, he realized he could flip the property for a hefty profit.
Here's how it turned out. He held the property for less than three years.
Purchase price - $850,000
Construction costs - slightly over $1 million
Sold - $3.1 million
Profit - Over $1 million
"No one wanted it. Everyone thought it was a tear-down, which it wasn't," he concluded. "Those deals are out there as long as you can underwrite and look at them in the correct way."