I Said I'd Never Flip a House...Why I’m Starting in 2025

Dave said he’d never flip a house. He doesn’t have the handyman skills; he doesn’t like managing contractors, and he can’t design a floor plan. So why now, coming into 2025, has he decided to flip his first house? It’s simple—an opportunity was presented to him that he couldn’t pass up. Partnering with expert investor James Dainard, Dave is flipping this house with James acting as the operator and Dave as the investor. If you’ve ever wanted to get into house flipping but felt like Dave, this episode will show you how to start. If Dave isn’t managing contractors or handling permits, what role does he play? Today, Dave and James are walking through their unique house-flipping partnership, explaining why James made an offer on the property within hours of hearing about it, their rehab budget, renovation plan, potential profit, and some hiccups they could run into (asbestos!). James is even sharing his expert tips on how to know a property is worth buying for a flip and questions you must ask a flipper or lender BEFORE you start working with them. We’ll keep you updated on this flip’s progress so you can see exactly what goes right, what goes wrong, and how much money this property will make! In This Episode We Cover: How to invest in house flipping even if you have ZERO renovation/remodeling experience Finding the deal and why you need to have relationships with wholesalers How to spot a great potential house flip—and one HUGE red flag to avoid at all costs Two ways to raise money for your house flips (debt vs. equity) and the pros and cons of both Picking a real estate investing partner and questions you must ask before you work together And So Much More! Links from the Show Join BiggerPockets for FREE Let Us Know What You Thought of the Show! Ask Your Question on the BiggerPockets Forums BiggerPockets YouTube Hear Dave and James on On the Market Grab James’ New Book, “The House Flipping Framework” Find Investor-Friendly Lenders Flipping Houses: How to Get Started and Everything You Should Know Connect with James Connect with Dave (00:00) Intro (02:23) Finding the Deal (03:30) Purchase Price, Rehab Costs, & Comps (08:16) Signs of a Good Flip (11:52) Permits, Plans, and... Asbestos! (13:50) How to Passively Invest in Flips (18:53) Picking a Partner (29:02) Ask THESE Questions (33:28) Follow the Flip Progress! Check out more resources from this show on BiggerPockets.com and https://www.biggerpockets.com/blog/real-estate-1058 Interested in learning more about today’s sponsors or becoming a BiggerPockets partner yourself? Email [email protected]. Learn more about your ad choices. Visit megaphone.fm/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:05Dave Meyer?

  I have never flipped a house. And if you've listened to this show for a while, you've probably heard me say that I will never flip a house. But it turned out that wasn't true, because now I am flipping a house and I'm doing it with the guy who literally wrote the book on house flipping, James Dainard. Today, James is joining me on the podcast to talk about our new flip project in Seattle. Why I've decided now is the time to try this strategy I swore I would never do, and how lots of you listening to the show can replicate our partnership and become a flipper, even if heavy rehab projects seem super intimidating to you. So, James, thanks for being here, man.

• 0:45Speaker 01

  I'm excited. And I get to walk you through your first flip.

• 0:49Dave Meyer?

  And I feel like this is your dream. You genuinely just love teaching people how to flip. And I really want to learn. So I feel like this is going to be a great partnership for us.

• 0:57Speaker 01

  Oh, and I love when I teach a long term hold and a passive investor how to flip, because they're like, why was I hatin' on this for so many years?

• 1:05Dave Meyer?

  I feel like I'm going to have that revelation at the end of this. But actually, I should explain that we kind of already teased this out, just to set this up. Like, James and I co-host work together on the On The Market podcast. And on that show, we sort of did a bet earlier this year on who would have a more profitable flip, Henry Washington or James. And Kathy Fecky bet on Henry, I bet on James. I wound up investing in that deal a little bit. Ashley Kier from The Rookie Show got in on it. It was kind of this fun thing that we did. And James hit it out of the park. It was this massive success. And so it got me a little bit more interested in doing it again, because

• 1:47Dave Meyer?

  I saw that I could be relatively passive. And yes, I'm taking on risk, but I could get in on the big substantial upside of flipping, even though I'm not great at construction and value add, like, isn't my bread and butter. And so that's sort of the context for this. And then a few weeks ago, I told James I was like, kind of interested in it. I got this text from him in the middle of the night, being like, hey, I found a property for us to partner together and flip on. And he sends me this video. I'm actually just going to play some of the audio and play the clip for you, because it's really funny.

• 2:24Speaker 01

  All right, Dave, I'm late night creeping for you. I think this house is a winner. I'm gonna lock it down because I think it's a buy no matter what. But it looks like there's two beds, main floor, bathroom, living, kitchen, eating nook off there. But we got 2,500 square feet. This thing should be worth 1.5 million. Good street. It'll probably be 250, 300, depending on how nice you want to do it. If you want to build to the cost, you're probably 250. Alright, so up here, we got two beds and a bath. And then you got a basement. Going in the basement. Creepy, creepy. That's what I do for you, Dave.

• 3:03Speaker 01

  Oh, not that creepy. There's lights on. And then we got space down here. Oh dude, this is a winner. That is pro bash jobs. There you go. Good ceiling height. Yeah, this is a buy. I'm gonna lock it down. We can talk about it later.

• 3:18Dave Meyer?

  Alright, so you heard James's opinion of this property, but since everyone obviously couldn't see the whole thing or saw everything you saw. Tell us a little bit, James, about this property, how you sourced it, where it is, all that.

• 3:30Speaker 01

  Well, and that is the thing, you guys, time kills deals. I got a phone call on this at like 7 o'clock at night. And I was not ready to go and I dropped what I was doing. I bolted out there. It was dark. It was creepy. But because I did that, I told the guy, yes, we secured the deal and I don't think we would have had it the next day.

• 3:50Dave Meyer?

  Really?

• 3:51Speaker 01

  You know, when you have a good piece of property, you know, and this is why I got so excited about this one. Soon as I saw the address, you know, I was like, oh, this is in a prime Class A neighborhood of Seattle.

• 4:01Dave Meyer?

  Yeah.

• 4:01Speaker 01

  And then the price that was brought to me was really almost, it was dirt pricing. Builders were paying that much for that lot roughly right there, maybe a little bit less. And so I knew I had to rush out there right away. I knew the square footage, the price, the location. You can't wait on it.

• 4:20Dave Meyer?

  Give me just like a high level overview. We bought it for 825. How much do you think we're going to put into it and what can we sell it for?

• 4:27Speaker 01

  So we think we're going to be putting in about $250,000 into the renovation. So we're going to do a pretty high quality renovation. And in our Seattle market, that's typically what I pay for something if we're taking it to studs. Wiring, plumbing, framing, it's about a hundred bucks a foot for me on that size house. And I actually think we might be a little bit below that.

• 4:49Dave Meyer?

  Bam.

• 4:50Speaker 01

  So we have 250,000 and what that 250,000 is going to take the house from a three bedroom, one bath property into a four bedroom, three bath with a formal primary. In addition to, it's going to rebuild the entire garage because the garage is caved in, it is busted, and it needs a brand new one. By doing this, the comps then jumped up to, you know, when I sent you off those comparables, they were conservative too.

• 5:15Dave Meyer?

  Yeah.

• 5:15Speaker 01

  They, you know, as flippers, this is a high risk business. You don't want to go for that outlier comp. Like, don't chase the star. Go for the cluster.

• 5:24Dave Meyer?

  Oh, that's a good term. I've never, did you make that up?

• 5:27Speaker 01

  You know, I think I just made that up right now.

• 5:30Dave Meyer?

  I like that. Yeah. You want to stick to like, what's been proven time and again. You don't want like, oh, there was this one amazing sale. You don't know what the context of that one sale was. But if it's, if it's, a comp gets repeated several times, it gives you some more confidence.

• 5:45Speaker 01

  Yes. And that's what we're looking for is patterns. What is the averages? And, you know, so when we sent off the comparables, we had a range of them. They were anywhere between one, four, for houses that were seven, 800 square feet smaller, all the way up to 1.6.

• 6:01Dave Meyer?

  Yeah.

• 6:02Speaker 01

  And maybe even a little bit higher.

• 6:03Dave Meyer?

  Yeah. This is when I got pretty excited about it because the first comp was a four, two, a little bit bigger, 2,600 square feet, but sold for almost 1.6 in a similar neighborhood. We saw one at 1.4, 1.5. And this, you know, I went over there and it's a really nice block, really walkable neighborhood. Just seems like there's really good upside. So this, this got me very excited despite my. A little bit of sticker shock when you told me what we were gonna have to pay for, for the acquisition cost.

• 6:37Speaker 01

  It's amazing what you get for a million bucks in Seattle nowadays, but what it comes down to, is there the margin? That's what I'm always looking at. Is there the return?

• 6:46Dave Meyer?

  Within your buy box, is this what you consider a good deal, standard deal, thin deal?

• 6:51Speaker 01

  This is, I would say, higher than average deal. So for my buy box is a flipper in Seattle, and it changes with the market. Um, you know, when the market's really hot, I will look at deals, if I can make a 30% return in six months, I will look at buying that deal.

• 7:07Dave Meyer?

  Yep.

• 7:07Speaker 01

  And when the market's more normal, it's 35%, and when I'm a little worried about the market, it goes anywhere between 40 and 50% cash on cash returns. And so I don't really move numbers. I don't think about like, is it gonna be worth less? Is it gonna be worth more? I just go in with a smaller or bigger margin based on what I think the market's doing. And, you know, that kind of trains me as an investor to go, okay, is this a buy or not? Is it worth the risk is always the question we're asking because flipping is a very, very risky business.

• 7:39Dave Meyer?

  That's actually one of the things that made me feel a little bit better about this deal because I, I see some of the deals you do. James once posted on Instagram this video of him throwing a rock with his arm through the roof of a house he was about to buy. That's how dilapidated the house was. And that's the thing for me, as someone who doesn't have a lot of experience with construction, I've done burrs, I've done rental renovations, but I haven't really done like a full house makeover. I was really worried about it. You know, this is what has kept me out of flipping, but like, this house, like, what do you look for? That makes you feel like this is lower risk or like worth that considerable investment?

• 8:25Dave Meyer?

  And signals to you that this construction plan isn't going to be overly complicated or costly?

• 8:31Speaker 01

  What makes a house good or not, or what makes it complicated? It's, does it have a foundation or not? That's really my biggest concern. Because if I have to do structural foundation work, it takes time. It can be six to nine months as you're waiting for permits.

• 8:46Dave Meyer?

  Yeah.

• 8:46Speaker 01

  So I'm always looking at what's going to slow the project down. And so when I went out to look at the house for us, you know, one of my concerns was it was an old house, nearly a hundred years old. Do we have to reframe the entire structure? Because sometimes your bottoms, they're, they're really bad layouts and to maximize the value. So we pulled the comps, we looked at those, what do we need to create? I ran out there to go look at it. And what I was pleasantly surprised with, this is why I call it a six out of 10. There's a lot of good walls and spots they should already be.

• 9:14Dave Meyer?

  Yeah, right. So you don't have to shift things around.

• 9:16Speaker 01

  Not very much. You know, we're gonna open up some spaces, create a primary, and there's not a lot of structural framing in the house. And that is important for speed and cost.

• 9:26Dave Meyer?

  Even when I went over there, and I don't have as much experience, you could tell like, the bones and the layout were solid. Like, you weren't gonna have to do some crazy stuff in there. And that, that personally made me feel a lot better about this deal.

• 9:39Speaker 01

  Yeah. And when you walked in the front door, it was straight. That's a big indicator for me. Is it sagging? Is it sinking? And the house actually has really good bones.

• 9:48Dave Meyer?

  I love to hear it. That's great. All right, it is time for a break. But first, if you're enjoying this conversation, you may want to check out James's new book. It's called The House Flipping Framework. James, as you've heard, has flipped thousands of houses in his career. And this book is his tactical playbook for scaling your portfolio and reinvesting your profits. Even if you can't invest directly with James, like I'm doing, you can get almost all of the same insights by reading The House Flipping Framework, which is available at biggerpockets.com/ houseflippingyt. We'll be right back.

• 10:23Henry Washington?

  Quick word about a new pro perk you'll want to know about. Aven, if you're a homeowner, there's a good chance you're sitting on equity that you're not using. The problem is tapping into that usually means a cash out refi, a traditional second mortgage, or weeks of paperwork just to get approved. Aven built something different. It's a credit card, but it's backed by your home equity. So you get a lot of the rate benefits of a HELOC with the flexibility of a card you can use anywhere. Rates are typically well below a standard credit card, approval is fast, and mostly online, and you can use it for anything. A renovation, paying down high interest debt. Or just have more breathing room in your budget. And if you're a BiggerPockets Pro member, there's an extra reason to check it out. Get approved for the Avon card and you'll get a $400 statement credit after spending $400 on your Avon card.

• 11:08Henry Washington?

  Enough to cover your entire annual Pro membership. Head over to avon.com/biggerpockets to see if you qualify. Avon Financial, NMLS #2042345. Cards issued per 20 license from Visa USA, Inc. by Coastal Community Bank, NMLS #462289. Member FDIC. Equal housing lender. Subject to approval. Terms apply. Visit avon.com for details.

• 11:25Dave Meyer?

  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 their 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/retirement to learn more.

• 12:07Dave Meyer?

  If you're building a real estate portfolio, your banking setup matters more than you think, because the more properties you add to your portfolio, the more complicated managing the money can get. I own and manage dozens of properties and there's money constantly moving. Rents and payouts coming in, mortgages, repairs and expenses going out. With traditional banking, you're left figuring out what belongs to which property and spending hours updating spreadsheets just to understand your cash flow. That's why I use Baseline. It's BiggerPockets' official banking platform, specifically built for real estate investors and operators. I can organize my banking by property or entity with bookkeeping built right into it.

• 12:52Dave Meyer?

  So the bookkeeping happens as I bank and transactions are automatically categorized. So I'm not spending hours at the end of the month trying to piece everything together. I can see what's coming in, what's going out and how each property Is actually performing. So as your portfolio grows, your banking and bookkeeping can actually keep up with you. Open your account with Baseline at baseline.com/biggerpockets. Tax season reminder for all the real estate investors listening. If you own rental properties, short-term rentals, commercial buildings, basically anything that's not your primary residence, you need to know about cost segregation. It's an IRS compliance strategy that lets you

• 13:34Dave Meyer?

  accelerate depreciation on your properties, which means you're paying less in taxes this year and keeping more cash in your pocket for your next deal. Cost Segregation Guys is the go-to firm, having done over 12,000 of these studies with 500 million in total depreciation identified. Head to costsegregationguys.com/bp to get a free proposal and see your potential tax savings.

• 14:02Dave Meyer?

  All right. Thanks for sticking with us. Let's just jump back into this conversation about me and James flipping a house together. James and I will update everyone about this deal as we're sort of going through. We're going to make some YouTube videos about it. So we're not going to get too far into that much about the house itself right now. I want to talk about the partnership structure because I think this is something that's going to be really applicable to everyone here. But before we do, just what's the update? Where are we in the process right now?

• 14:30Speaker 01

  Okay, so we closed on this property about a month ago, roughly.

• 14:34Dave Meyer?

  Yes.

• 14:34Speaker 01

  And right now, we've had an architect go through, create our after plan. We've submitted that to the city for permits. We also did an asbestos test on the property because when we're taking that much out of the house, we want to make sure that we're not going to trigger some environmental. It did test hot. Dave, your first house is covered with asbestos.

• 14:52Dave Meyer?

  Oh, I've done this for rentals. I'm used to the abatement. I know this game.

• 14:56Speaker 01

  That usually will freak people out too. The asbestos and I'm like, just don't eat it and everything's fine.

• 15:01Dave Meyer?

  It's scary, that stuff. If you look into it, I don't want to mess with that. You hire the pros. That's what I would do. But I understand people. It's very expensive.

• 15:09Speaker 01

  It can be, but you got to price it right. So we got a fairly, we probably have the cheapest asbestos removal guys in the state doing our bidding.

• 15:16Dave Meyer?

  Oh, nice.

• 15:17Speaker 01

  And so because it tested hot, we had to do a 10-day notification to Clean Air. We had to wait 10 days and then they could start abating. So we did have, and this is the thing about these older houses with bigger margins. There's little hiccups that you don't expect, even with the asbestos delays in scheduling and engineering, because you're really dependent on that part, just to get your site planned and prepped. And then we've had the roof quoted out, that's being installed this week. And the garage is going to start getting reconstructed before the permits rolled out for the house. Uh, starting next week.

• 15:52Dave Meyer?

  And I think you said when we were talking the other day, it's you think from permits, it will be four months to completion, right?

• 15:59Speaker 01

  Yeah, four months and that's, that's an aggressive schedule, but we have a general that has loosened up a lot of work. He doesn't have a lot of workflow. So typically it would take him five, five and a half months. And, you know, four months is going to be the goal. And that's something I will talk to you about once we are locked into a date, because I also like to throw bonuses at the contractor if they hit that day.

• 16:18Dave Meyer?

  For sure. I do want to turn to sort of the partnership side of this because like I said, I've sort of never thought I would participate in a flip in any way. And then I realized sort of this through this game we were playing on, on the market and just like being in this industry long enough, realized that like there is a role for passive investors in flipping for certain people, not all operators want to do this. But you created a structure that was sort of like a, a really good win-win opportunity, I felt for both of us. And I think would be really helpful for you to explain it to the audience because there are probably, I'm guessing there are other people sort of like me, who are more passive rental property investors who would be interested in investing in a flip if the right partnership came around.

• 17:02Dave Meyer?

  So tell everyone a little bit about how you structured our deal.

• 17:05Speaker 01

  We bring on partners to give us more purchasing power.

• 17:08Dave Meyer?

  Yeah.

• 17:08Speaker 01

  Because we have the teams, we, we can execute the plan. There's no reason for us not to go buy the deal. Typically when we do this, there's two ways that we raise capital and most flippers do it this way as well. Is you're either going to raise it with debt where you're going to be taking on a hard money loan. And then maybe a secondary private money investor loan, or even a private investor for the whole thing. And that will give you high leverage where you can get your entire deal funded with leverage for the most part.

• 17:34Dave Meyer?

  Yep.

• 17:35Speaker 01

  And that's going to cost you usually rates, you know, anywhere between 10 and 15%, two points depending how much leverage it is. And, but then as the operator, I'm stuck paying debt that whole time.

• 17:46Dave Meyer?

  Yep.

• 17:46Speaker 01

  And this is a game of cash flow too, because when you have. Thirty, forty projects going on at a time. You know, I think our average monthly payment for hard money right now is probably like, we, we probably pay two hundred fifty grand a month.

• 17:59Dave Meyer?

  Wow.

• 17:59Speaker 01

  And, and interest payments.

• 18:01Dave Meyer?

  Two hundred fifty, damn.

• 18:03Speaker 01

  It's, and so we have to pay attention to that. That, that's a wave, right? And, and so when you bring in a partner, so instead of bringing in debt, a lot of times bringing in an equity partner. This is where you're not going to be paying them interest or points and you can bring in a partner and in our partnership, you know, I'm responsible for sourcing the deal, running the project, taking it through the execution, being the operator, and your job is to wire me the money that we need.

• 18:30Dave Meyer?

  Yep.

• 18:30Speaker 01

  And it works out really well because we don't have to worry about cash flow because our investor is the person bringing in the capital. The negative thing is, as an operator, we're paying out more.

• 18:41Dave Meyer?

  You're giving up upside.

• 18:42Speaker 01

  We're giving up upside and also the, the cash on cash returns that we get on our flips are a lot higher than what we can borrow money for, ten to twelve percent.

• 18:51Dave Meyer?

  Right, right. Yeah. Cause you could leverage it more and earn a higher cash on cash return.

• 18:55Speaker 01

  Yes.

• 18:56Dave Meyer?

  But I guess the counter side is that when you take on a partner like me, you are taking less risk because when you take on debt, right? If the deal goes sideways, the bank eats first. And so the equity partner gets, you know, you would get left holding the bag. Whereas this time, if something went bad, we would split the downside and it, it would probably hurt less, right?

• 19:20Speaker 01

  Correct. So that, you know, Dave, we've done some lending stuff together too. And, you know, you make ten to twelve percent on the money and that's a guarantee with a personal guarantee behind that. So whatever happens on that project, you are getting paid your rate and your points. With equity, like you said, if the deal goes bad, the return can go down or go into the red. And so that's why there's more profit in the beginning. You know, like on this deal, when I sent you over, you know, we looked at the comps, we looked at the purchase threshold, the budget. When we were looking at the return, it's a high return. It's like sixty percent.

• 19:52Dave Meyer?

  Yep.

• 19:53Speaker 01

  In there and a sixty percent return is a lot more than twelve to borrow. But you're also taking on a risk. If we hit, let's say the market crashes tomorrow, you're going to be in the red too.

• 20:04Dave Meyer?

  Yeah, for sure.

• 20:05Speaker 01

  And so it's, that's why there's that upside. And as an operator, balancing your partners is actually really key because you don't want to be all in and leverage and be paying those payments all the time. You want to kind of balance it out. And then for us too, because we do a lot of projects, we like to have long-term partners and have them in multiple different types of revenue streams. So they do well in the long run.

• 20:29Dave Meyer?

  That makes a lot of sense. And I mean, from my perspective, it's great. Like I understand that this type of deal is risky for me. It also has great upside. But for you, doing as many deals as you want, I can see why you wouldn't want to do all max leverage. That's really risky. And you wouldn't want to do all equity partnerships because you'd be giving up a lot of upside. So coming up with a blend of financing options and different approaches to financing your deals makes a lot of sense to you. We got to pause for some ads, but stick with us because after the break, we'll talk about how almost anyone listening can replicate this partnership that James and I have formed and learn how to flip firsthand.

• 21:14Dave Meyer?

  For my wife's birthday, I wanted to make her a new website for her landscape design business. So I researched a lot of different options. I tried out a couple, but honestly, it was really overwhelming. It was pretty time consuming and still the site wasn't coming out the way I wanted it to. Then I tried Hostinger and everything was super simple. I asked Hostinger's AI to build a clean site for her business and it had a working version up in minutes. No coding or designer needed. Plus, its AI agent helps with SEO, website copy, and email marketing after launch. You get domain, website, email, all in one account. And right now, you can get Black Friday and Cyber Monday pricing

• 21:57Dave Meyer?

  through December 14th. So snag Hostinger's services at their lowest prices before the sale ends. Create your website today for just $1.99. Go to hostinger.com/realestate and use code REALESTATE for an additional 10% off Black Friday and Cyber Monday pricing.

• 22:14Henry Washington?

  Buy smart, drive for less, and trade for more. That's Toyota affordability. And it all starts with a great deal from your local Toyota dealer. Make a smart buy on an all-wheel-drive Camry, Corolla Cross, or get a Corolla sedan packed with the latest features, advanced tech, and head-turning style. Take a test drive in two of Toyota's most popular SUVs, the spacious, family-friendly Grand Highlander and adventure-ready RAV4. And with so many hybrid and plug-in hybrid models available across the lineup, plus efficient all-electrics like the BZ, BZ Woodland, and all-wheel-drive CHR, you can drive your way and skip the pump. And long after you leave the lot, your Toyota keeps delivering with legendary resale value built on a reputation for quality and reliability.

• 22:59Henry Washington?

  So when it's time for your next Toyota, you could trade in for more from a great deal today to a great value tomorrow. A Toyota is right for you. Shop toyota.com for deals and details or stop by your local Toyota dealer today. Toyota, let's go places.

• 23:14Dave Meyer?

  I just booked a ski trip to Park City, and I've already got the whole thing planned out. Five days, first tracks every morning before the crowds show up, my knees reminding me I'm not 25 anymore by the second run, and an embarrassing number of overpriced burritos at the lodge. I don't even care. This is the trip I look forward to all year. But here's the part I actually appreciate. The practical side of my brain kicking in is that my place doesn't have to just sit there empty the whole time I'm away. I can list my space on Airbnb and bring in a little extra income while I'm out getting humbled on a mountain. And with the co-host network, I'm not the one handling all of it. You can partner with a vetted local co-host

• 23:58Dave Meyer?

  who can create your listing, manage reservations, message guests, and even handle the styling. So I get to fully focus on my trip, and my place is still working for me the whole time. Find a co-host at airbnb.com/host.

• 24:12Henry Washington?

  BiggerPockets Real Estate is brought to you by MOD. MOD prescribes a once or twice daily modophonal drink that can keep you energized, focused, and alert throughout the day. Here's the mechanism. Energy drinks with caffeine temporarily block eudenecein, the chemical that makes you tired. It builds up, and when the caffeine wears off, it all crashes down on you at once. Modafinil works differently. It engages multiple pathways in your brain, dopamine, norepinephrine, histamine, and orexin to achieve steady energy and alertness for 10 to 12 hours. Modafinil was invented in the 1970s, and since it's been used in the highest performers on the planet, soldiers, pilots, and astronauts aboard the space station use modafinil in high-stakes situations

• 24:55Henry Washington?

  where full concentration and alertness are paramount. It's now available at mod.com to qualifying patients. Visit mod.com, that's M-O-D dot com, for free consultation and get 10% off your first order plus free shipping with promo code BPRE. That's promo code BPRE at mod.com. See their website for important safety information, and we thank MOD for sponsoring the pod.

• 25:20Dave Meyer?

  Investing in real estate has always been smart, but it hasn't always been simple. Now, it's both, thanks to the Fundrise Flagship Fund. The Fundrise Flagship Fund launched more than five years ago with a mission of delivering low-fee access to blue-chip private market real estate. Today, the Fundrise Flagship Fund has grown to manage more than $1 billion of real estate on behalf of hundreds of thousands of investors, making it one of the largest funds of its kind. For those who believe real estate has an important role to play in their portfolio strategy, the Fundrise Flagship Fund has positioned itself as both a simple and a smart option. Whether you're starting with $10 or $10,000,

• 26:03Dave Meyer?

  the Fundrise Flagship Fund makes adding real estate's unique potential for both passive income and consistent growth. Just visit fundrise.com/pockets to make your first investment today. Carefully consider the investment objectives, risks, charges, and expenses of the Fundrise Flagship Fund before investing. This and other information can be found in the fund's prospectus at fundrise.com/flagship. This is a paid advertisement.

• 26:33Dave Meyer?

  We're back. Here's the rest of my conversation with James Danard. You know, we could talk maybe at length, it's probably a whole other show about how someone like me should vet an operator. Obviously, this is a unique situation. You and I know each other and so like I trust you, but I think the other side of this is less talked about and maybe even more interesting to some of our audience, which is like, what do you look for in a partner? Because you have done a million deals, you can probably, you know, you have banks that you can use. Like, what is the ideal equity partner for you? Because I would imagine there are other people like me who want to invest passively in these types of high upside value add projects, but don't really know

• 27:19Dave Meyer?

  how to structure and strike a partnership with an operator.

• 27:22Speaker 01

  In the Pacific Northwest, we run eight different businesses and they take a lot of time in management. And the thing that I've learned in our 20 years of doing this is too many cooks in the kitchen is a bad thing. Too many pinions on a deal is a bad thing. And so we don't take money from everybody. We actually turn it down pretty regularly. It's a matter of we have to have the right partner and the partner needs to be a of like mind. They need to also understand risk. We do not sell fairy tales. Like, I mean, Dave, me and you have talked about like, yeah, everything go bad, you could lose all your money.

• 27:54Dave Meyer?

  Yeah, I know that part of the game.

• 27:56Speaker 01

  And that's important in this agreement and partnership. Yeah, like I would say, never take money from someone that doesn't fully understand what they're they're getting themselves into.

• 28:05Dave Meyer?

  Yeah.

• 28:05Speaker 01

  And so we don't want someone in the background trying to, you know, talk to my team regularly. They can get updates, but they cannot direct. And if they ever have a question, say, hey, I'd just like to know about this to learn. Oh, by all means, I'll sit there and chat with them all day long about it. But at the end of the day, it's my plan.

• 28:22Dave Meyer?

  Yeah.

• 28:23Speaker 01

  And if they don't want to do my plan, that's okay. They can do their own plan. And so that's important because it's not because I just think I know everything. It's because it provides clarity to everybody working on the job site. When there's more people involved, the telephone game happens and mistakes happen.

• 28:38Dave Meyer?

  Yeah, and everyone has to have a different job, whether it's a flipper or business, right? Like you should specialize in what you're good at. My specialty here is just wiring you money and then never directing anything, just asking questions about what to learn. The way I think about it is like you're sort of going on a ride. I don't know, have you, have you ever been skydiving like with a tandem person?

• 28:58Speaker 01

  No, I was supposed to go four times in a row and it got canceled for weather four times in a row.

• 29:03Dave Meyer?

  Oh, my God.

• 29:04Speaker 01

  And then I took that as a sign that I should not be going.

• 29:06Dave Meyer?

  Just not do it. Okay. Well, it's like the reason I always think about it this way because like you're going and unless you have your license, you basically just get strapped to the instructor and they jump out and they do everything and you're just basically saying like I'm trusting this person with my life, their experience, I'm not going to say anything, I'm just going to go along for the ride. And like, obviously, real estate has different risk and reward than skydiving, but it's kind of the same thing where it's just like you have to put your trust in this person and what will be will be. You being like wanting to know every detail or put your opinion is not going to help the situation. And so you have to recognize that in this type of deal, you are passive, you are quiet, you are silent, you are backing an operator that you believe in, and then you got to let them do their job.

• 29:50Dave Meyer?

  You can't sort of try and micromanage these situations.

• 29:53Speaker 01

  No, it just gets, you know, like I've invested with Kara Beckman.

• 29:56Dave Meyer?

  Yeah.

• 29:57Speaker 01

  That you know, on some projects and she's like, wow, you're the easiest partner. I'm like, well, I'm the operator usually and she's like, well, don't you have an opinion? I'm like, I have an opinion, but you're in charge. If you want my opinion, call me and ask for it and I'll give it to you. But I was like, whatever you think we need to do, let's just do it. But I do want to know if you're going over budget, we're going over timeline.

• 30:16Dave Meyer?

  Yep.

• 30:17Speaker 01

  And why? Because as an investor like Dave, I may not want you to participate, but you still need reporting, you still need progress updates and that's important. Clarity is so important in any real estate partnership and especially when you're dealing with operators and funding.

• 30:34Dave Meyer?

  Yep.

• 30:35Speaker 01

  And picking the right people to you partner with is essential.

• 30:39Dave Meyer?

  Totally. Yeah, the way, the way I sort of think about it is when you invest passively, whether this particular deal or when I invest in like a fund or in a syndication. You're agreeing with the operator to a business plan. Like you that there's a lot of conversation upfront about like, here's the structure of the deal. Here's the asset that we're buying. Here is the thing that we're trying to accomplish from this deal. And after the agreement is made, what I want to know is like, are we on track? Or are there deviations to that agreement? And if everything's on track, I, I don't really care.

• 31:18Speaker 01

  You have to trust your partner. Like me and Will, my business partner, he runs his set of books. I run my set of books and we fully trust each other that we're doing the right thing. And if you don't have that trust, don't do the partnership. You always have to have trust. You always have to have clarity. And that's why the documents are also so important because it does outline everybody's responsibility. When you're putting together these partnerships, you know, like when we decided to partner on this house, I had already closed on the house. So I funded it, you backfilled in with the partnership. And then we did that through a joint venture agreement. And the joint venture agreement is the contract and it's how it protects me as the operator protects you as the investor.

• 31:59Speaker 01

  And it spells out the thing about a joint venture agreement is you can go as detailed as you want. Who is doing what and who is responsible for what? And then where is the accountability? You know, like in a joint venture agreement, you could write in that you could ask accounting for a forensic audit every week if you wanted.

• 32:18Dave Meyer?

  Yeah, and you would have never taken my money if I asked for that.

• 32:21Speaker 01

  No, I'd be like, I'm gonna send you my accounting bill too. It's a, but that's in that, that's why it's so important with the clarity. Like, you know, because you can know the people really well and the deal can still go really bad.

• 32:31Dave Meyer?

  Of course.

• 32:32Speaker 01

  I mean, I've done some deals with buddies and, and I don't blame them. It's just the deal went bad.

• 32:37Dave Meyer?

  Yeah.

• 32:37Speaker 01

  That's, that's hard, right? Cause you're trusting that process, you're trusting the market. But the clarity in the paperwork, that's why you always have to have, don't jerry rig the thing. Like you have to have the right paperwork because that's what's protecting your money.

• 32:52Dave Meyer?

  Yeah. I mean, even if deals go well, you need to know, you need to have that, right? Like you need to have everything laid out on every one of these partnerships. And, you know, luckily for me, in this deal, like you have a structure that works for you. And I, I was happy to sort of slot into, but I've done other partnerships. And that is the work to, in my opinion, is like making sure that everyone has not just mutual agreement, but. Incentive alignment that like we both win when there's upside and we both lose like sort of at a proportionate rate if there's downside and that that way, no matter what happens, win or lose, like everyone feels like they're treated fairly, you know, and

• 33:33Dave Meyer?

  that they got a fair shake. And like, that's how I feel this structure works for me. Even if the deal goes poorly, I feel like we're both taking on an appropriate amount of risk to earn a potential for an appropriate amount of a reward.

• 33:47Speaker 01

  We don't look at per deals. We look at people as long-term partnerships.

• 33:51Dave Meyer?

  Mm hmm.

• 33:51Speaker 01

  And it's just, we're okay doing that because yeah, we're also making a return. And, you know, and that is the benefit of an operator or bringing in equity. You don't have as much risk in the deal. Because I see a lot of investors, they rush in, like, I just partnered with this person. I'm like, oh, cool. How'd you meet him? I just met him at a meetup group. What deal did you buy? I don't know.

• 34:11Dave Meyer?

  Yeah.

• 34:11Speaker 01

  They had good numbers. I was like, what? So where did you look at the number? And then I get curious, like, how did you bet the numbers? And they're like, oh, well, he's just done this a lot. And I'm like, oh, no, like, it's, and maybe they have, but you have to understand what you're sending money on.

• 34:25Dave Meyer?

  Oh, totally. Yeah, that's scary. Because numbers, I mean, investing is about assumptions, right? It's like, the calculations are easy. It's about what you assume is going to happen. And you could be way off on that. And you can make your assumptions look great, but they could be completely wrong.

• 34:40Speaker 01

  Yeah. And that's getting to know your operator before you fund them. Like, how do they look at investments? You know, I mean, you have talked to a lot of operators in your career. I know that. Some, they like to put some juice in their performer.

• 34:53Dave Meyer?

  Yes.

• 34:53Speaker 01

  And you look at like, three deals from them, you're like, yeah, the numbers are, everything's at the best case scenario.

• 34:59Dave Meyer?

  I like the pessimistic people. I want to hear people who are like, yeah, this probably won't go well.

• 35:04Speaker 01

  And as an operator, for me, I like to be pessimistic because it's easy to under promise and over deliver. That's the easiest conversation you can have.

• 35:14Dave Meyer?

  Yeah.

• 35:15Speaker 01

  When you over promise and under deliver, it sucks the life out of you, too, as the operator.

• 35:20Dave Meyer?

  Oh, yeah.

• 35:21Speaker 01

  And it is not worth it. And so like, all these operators out there, be conservative. If you're conservative, you're protecting your investor. And I'd rather go to you, Dave, and go, hey, look, I got this deal, and you can make 16% on it. It's a quick deal. It's easy. There's lots of upside. Because like our flip off house in Kent.

• 35:39Dave Meyer?

  Yeah.

• 35:39Speaker 01

  It doubled like and I I knew I was being a little conservative, but not that conservative.

• 35:43Dave Meyer?

  Yeah.

• 35:44Speaker 01

  And as long as you do that, it makes everybody's lives easier and you prevent issues and you prevent legal issues as well.

• 35:50Dave Meyer?

  Personally, this is how I operate my investing business, regardless of whether it's a partnership or not. I always want to look at the world like not the worst case scenario, not like a two thousand and eight scenario. But I want to, I underwrite for low growth, low lowest possible outcome. And usually I'm wrong and something better happens like the the flip house, the game house that we invested in. That's a good example, like you set my expectations lower than you thought, and then I was delighted. I do the same thing when I underwrite a rental property, right? Like I underwrite for low growth, for high expenses, for low appreciation, for low rent growth. And I'm usually wrong on the upside, right?

• 36:33Dave Meyer?

  Like there's usually more upside in a deal than the way I underwrite it. But I like only executing deals where if things go like pretty badly, I'm still comfortable with the deal.

• 36:43Speaker 01

  Yeah, and then it's like, how do you find that on your operator? And in so that's where you can ask those questions. Like if an investor that we're talking about doing a deal and they want to ask me like, hey, you're projecting this to take seven months, eight months. Can you show me the last five deals similar and how long they took?

• 37:02Dave Meyer?

  And what if they say no? Or I think they probably wouldn't say no, but how would you evaluate their response? Uh, you know, like what would a good response look to you for that? Like what what kind of documentation, what kind of evidence should they bring to you?

• 37:15Speaker 01

  Well, and that that on the operator side, if they're asking me for a million things about that, I'm going to be like, okay, you don't trust me at all. But I mean, if someone can show me you on a tax record, when they bought it, when they sold it. You know, typically, as I get to know an operator too, or even getting to know an investor, I'm trying to set those expectations. I send them over pictures of what we do as well. Like here, here's an example house because I want them to know too, like what is our talents, what is our skill sets? Because everybody flips properties different. Depending on the market, there's some houses that the way they do it in a different part of the country that we can't do that in Seattle.

• 37:52Dave Meyer?

  Right.

• 37:52Speaker 01

  And the way we do in Seattle, won't make any money in those other parts of the country.

• 37:56Dave Meyer?

  Yeah, it's a pretty unique place.

• 37:58Speaker 01

  And so asking for those things, there's nothing wrong with asking for proof. And if, if an operator won't get that to you, I, that's a red flag. But the same red flag is if you're going, hey, thanks for those dates. Can you send me your P and L's? Can you send me every invoice you, you spent?

• 38:14Dave Meyer?

  Yeah.

• 38:14Speaker 01

  Like, i- if you're getting too deep on me, I just don't want to deal with it. It's not that I won't show my books. It's just like, I don't have time to answer so many questions all day long. We got things to do.

• 38:23Dave Meyer?

  But to your point, like when you were starting out, you would have done that.

• 38:27Speaker 01

  For sure, because you know, when we're new, you know, and we all start from the same place, right? Like it's, I got in this business as a wholesaler, less than fifteen grand in my bank, didn't know what I was doing. But I wanted to learn, right? And so I was willing to give away a lot just to learn and get, and that was the best thing I ever did.

• 38:48Dave Meyer?

  Yeah.

• 38:48Speaker 01

  But I would have done whatever it took to get that money. And when I invest with people, I always let them know the vetting process is the most gnarly. After that, they won't hear from me much.

• 38:57Dave Meyer?

  Yeah, exactly.

• 38:58Speaker 01

  And because you really have to see, because people can say a story, but you gotta know the story.

• 39:02Dave Meyer?

  Right.

• 39:03Speaker 01

  And you know, if it's a newer operator and they're on project number six, project number, maybe even project number one, I don't want a budget. I want a construction bid. I want to know what the actual costs are that are going in this house because they don't have the experience to kind of narrow that cost down. Whereas at our company, we've been now, as we've done this for a long time, we make the bid, give it to our contractors and negotiate. And we make that bid based on the pricing we know that they'll do it for.

• 39:31Dave Meyer?

  Oh, that's, dude, that's such a flex to be able to be like, I know, I know what this costs. I'm going to give you your own bid.

• 39:37Speaker 01

  Well, that was that budget we sent off to.

• 39:39Dave Meyer?

  Yeah, amazing.

• 39:40Speaker 01

  And I think you have to verify those numbers, right? Like, I know, I know you don't vet my deals probably as thoroughly as maybe someone, but you love looking at the numbers.

• 39:48Dave Meyer?

  Oh, it's the best.

• 39:49Speaker 01

  And as a passive investor, more you understand those numbers, you have to see what's the brick and mortar.

• 39:54Dave Meyer?

  Yeah.

• 39:55Speaker 01

  Budget at two fifty. Is well, what's going into it? What if that operator is spending $250, but they're not even adding a bathroom?

• 40:01Dave Meyer?

  Right? Exactly.

• 40:02Speaker 01

  So you have to know what they're doing and not doing. And that's the cool thing about what you're going to do on this project right now is the more you know, the more returns you're going to be making because you know who to invest with and not to.

• 40:14Dave Meyer?

  Yeah, absolutely. I I'm way far behind, but I'm so impressed by your ability to just like, name off what anything should cost. You're like, oh, like, like adding a bathroom should cost this amount. You know, a new ba- a new kitchen, X amount per square foot. That doesn't come easily. I'm so impressed that you could do it, but I want to get at least closer. Like, that's my, one of my main goals for this is to really just be able to sort of benchmark expenses for construction. And get better at that because it allows you to to vet deals, vet operate it so much better. Even if you're not doing it yourself, you have to have at least like a little bit of a baseline here. And that's what I'm hoping to learn from you on this project.

• 40:53Speaker 01

  Yeah, I mean, the construction is the brick and mortar, all this lending partnerships. That's the component that tells it whether it's going to be profitable or not.

• 41:01Dave Meyer?

  Well, I could talk to you about this all day, but we are meeting up on Monday to talk about this more. So I think we should get out of here, but this is a great conversation. Thank you for including me on this deal. I'm super excited about it. I'm going to think I'm going to learn a lot. And we'll take you all along for this ride because I imagine that there are a lot of people out there. Like I said, like me, who don't necessarily have the construction chops or the time to run a flip, but are eager to get in and have a chance at some of the huge upside that is available from these value add projects. So we'll take you along for the ride. And James, thanks for being the teacher on this one.

• 41:36Speaker 01

  I better look good. So that's that's extra pressure for you. We gotta hit this deal right or this is not going to be good for me.

• 41:42Dave Meyer?

  Yeah, it's a good thing we're we're recording this before we know what happens. So it puts a little bit of pressure on both of us to to make this thing happen. But I I have full confidence and either way, we'll learn something.

• 41:53Speaker 01

  Yeah. All right. Let's go walk this site.

• 41:54Dave Meyer?

  All right. Well, we'll put that up on YouTube. So make sure to to to check that out if you're curious about this house. And that's what we got for you today. So thanks so much for listening and we'll see you again soon for another episode of the BiggerPockets Podcast.