James’s Exact Criteria for Finding High-Return, Overlooked Deals in 2026

0:00How do you spot deals in a confusing market? How do you find opportunity when there's a lot of negative sentiment about real estate? These are the questions that every investor is asking themselves right now. And today on the show, we're going to help you answer it. If you listen to the show, you already know James Dainard. He's a regular on our panel episodes, a friend of mine, and one of the most active operators I know he's done pretty much every kind of investing there is. And when the market is shifting, he's one of the people I turn to. I always want to hear what he's seeing on the ground, not just in the data, but in the real deals he's doing, the real negotiations he's doing, and the real numbers that he's earning.

0:46I'm Dave Meyer, and today on On The Market, James is back for an open check-in on the housing market, his portfolio, and how he spots opportunities that no one else sees. And he's also going to teach all of us how you can do the exact same thing. This is On The Market. Let's get to it.

1:11You know, James has obviously been a co-host of the show forever, four years now that we've been doing this show, but there are new people listening all the time. So can you just give us a little bit of background on yourself and your involvement in real estate before we start talking about our topic for today, which is going to be about how you're navigating the current market. But tell us about your history. My partner, Will Heaton, and I, we've been a full-time real estate master since 2005. You know, I got in the business while I was in college, started wholesaling. Then we started flipping throughout the recession.

1:42and we've taken going from sourcing deals to flipping properties to now we have almost a thousand doors in the Pacific Northwest. And our passion really is value add construction. So we're very heavy construction guys up in the Pacific Northwest. We do lending, anything associated with creating value. We have either a business that's associated or it's an active project. I think right now we have like a couple hundred apartments under renovation, 30, 40 townhomes getting built. And then, I don't know, we have a bit of a problem, a little bit of a deal junkie problem. You do, but that's exactly why I wanted to talk to you today because you have experience in pretty much every kind of real estate investing.

2:23You also, I think at least, are somewhat of a contrarian. You know, you just said you flipped during the recession. I think a lot of people would be like, why on earth would you do that? You're flipping right now. I think, you know, you go on social media, people say flipping is dead. But you have a very unique perspective. You're able to see opportunity in the market that a lot of people don't. You're able to make deals work that a lot of people pass over. And so hoping that you can share with the audience today some of those lessons. So maybe let's just start biggest picture here. Like when you're looking at the market today, how would you describe it?

3:03What's your feel for it? And then tell us a little bit about how you're adapting to it and what you're trying to do in today's market. You know, when I hear people talk about that, it's like, okay, well, today's market was different in the spring than it is the summer, right? Because I always look at it as today's market is the year, right? Like what are we planning out for the year? What are we buying? And I can tell you right now, it doesn't feel great because it's also the summer seasonal market. Seasonal markets are just back. And we are definitely seeing a slowdown in demand as things have gotten more and more expensive.

3:35And also part of the reason is we're seeing a little bit of climate changes in economics in Washington State where I invest. And so things always change, right? That's the thing about real estate. During the pandemic era, everything always went up. And it was this bull rush to buy things. and that's a short window of time, but the wealth and everything's made about buying and securing properties when it doesn't feel good. And we kind of built our business in 2008, not because I think we're like, oh, these mad scientists are like, we know what's gonna happen. We just didn't know any better, to be honest.

4:10But what we did know is how to look at a good opportunity and go, okay, we couldn't buy this a year ago because in any kind of market condition, there is always a buy. Market could be terrible. It could be free falling like it was in 2008. And we were still buying. And so you just have to buy deeper and deeper. And right now, the good thing is people are a little bit salty on real estate right now. So it creates a ton of opportunity. I think that's perfectly said. And it's something I've seen you do time and time again. Every time we have you on or you're talking about deals, you've tweaked your business, right?

4:45You have so many things going on. And I could imagine it's sort of tempting to just like keep doing what you're doing. But it seems like you stop, take stock of the market and reformulate your strategy like pretty frequently, right? Like how often are you thinking about the market and making these changes to your approach? You know, one thing about being an active investor is that one of the biggest things anyone can do is just you got to arm yourself with knowledge. And I'm not talking about investment strategies that make you spin in circles and you go nowhere, where you're just listening to every strategy.

5:20You don't know what you want to do. It's what is going on in your backyard and where you invest in and what is the trends. And, you know, so we I spend a lot of time in the data of the MLS and sales in what's selling, what's not selling, how long is things taking. And most importantly, we spend a lot of time, not just on the market, but what's going on internally in our business with what is our true costs and what are we best at. And so a lot of times when we're picking our investment strategy, I'm going, what is our core team best at? What are our contractors good at doing? How can we control the cost the best?

5:57And when the market does get a little bit sideways, I try not to dive into stuff that I'm, that's just completely new to me and unknown because there's such a big learning curve. And so, you know, stick to what you know, but I'm the person that always looks the other way. When everyone's looking left, I'm looking right. Anytime there's like a trend, I'm like, I want nothing to do with it. Dude, I'm the same way. Anytime it's on social media, I'm like, that's not gonna work. Not because it's the person. I'm just like, anything that gets trendy, it's too late. By the time people are talking about it, it's usually too late.

6:31Yeah, you get this bull rush in and then everything gets out of whack on pricing. You know, like in Seattle, dadu properties, people were losing their minds over them and overpaying. And there's nothing wrong with the investment strategy. It's a good strategy if you get the right deal and the numbers work. But when all of a sudden people start building these dadus, they start selling them for a lot of money. They're renting for a lot of money. And it was like, this is what you do to make money in real estate. And everybody went to go find these type of deals. and the pricing on these lots went up by 20 % over a 12-month period.

7:07But what that always does is it creates a gap. And during that time, the gap was, hey, properties that you can't build daddues on, but there were big fixtures, no one wanted them. And so it creates this opportunity. And so I'm always looking to go against the grain. Or once that trend starts to sizzle out, that's where you want to go hard at that. Like once people go, nope, I do not want to turn left anymore. I got to look for something else to do. or get out of the market. That's where the pricing just drops. And we just saw a deal like this week where I was like, I can't believe what price this is at.

7:40It's crazy. Yeah. Let's talk about that deal in a minute, but I just want to emphasize for everyone listening because James obviously is a huge, sophisticated, successful business, but what he's saying right now is something that everyone can apply to their own investing, right? Like you are just saying, I look at essentially where the competition is, Like where are prices getting bid up because everyone is enthusiastic about it? And these other tried and true methods like flipping, or I even see it with regular rentals right now. It's less competitive here because people are pursuing midterm rentals or rent by the room or whatever people are doing.

8:17It doesn't mean that those old things have gotten worse, but it does mean that you're going to have less competition, meaning that even if the returns don't look as sexy on paper, if you can buy them for cheaper, because there's less competition, there's less demand, prices go down, that means you have an opportunity to earn as good or better of a return than what everyone else is doing. I think you mentioned daddies, but to me, James, it's kind of what happened with short-term rentals, right? People started doing it and then people were making good money. So everyone started buying short-term rentals and built up the price of short-term rentals.

8:54Now there's an oversupply of them. People are selling their short-term rentals. Meanwhile, the bread and butter stuff still worked. And I'm not knocking on short-term rentals. There's still ways to make that work. But I think that mindset of looking for the opening, not where everyone is flocking to, but looking for the opening and looking for something that no one else is seeing is something everyone can do in a time-tested approach to real estate. Yeah. Because when the market, the economy, and everything's hitting, it's easy to have any kind of asset class can do well right and there's potential there but you also sometimes it's just a short-term thing where you're like oh i'm gonna get this for just a season and then i'm gonna move on right so with the daddies for example i still got the deals but i didn't want to build them because i thought there was going to be too many of them coming to market and so i started i was flopping off the lots i was like well if everyone wants to buy this stuff i will get this i'll permit it i'll sell the lot and people started realizing that was more profitable than buying the dadu lot, building it, and selling it.

9:54And it was much quicker. And so it's like, you want to always look at what are you good at, right? And part of the reason I never built them out is I don't have a crew that can build like single units in the backyard. We're not that efficient that we do townhome sites. So there's like four to eight on a site. To take our whole construction company, put it in our backyard doesn't make any sense. And so not that it's not a good investment. It just doesn't work for us. And so, but it's always like buyer beware when there's a trend, right? Short-term rentals, midterm rentals, dadu investing, syndicating, big multifamily, big deals.

10:28Oh yeah. That's another good example. Yes, for sure. And they're all good asset classes. And now like multifamily is a perfect example, right? Like everyone is saying, like I go on Instagram all the time right now and people are like, syndications are terrible. They're scams. They're bad. It's like, no, it's not syndications. First of all, That's just a deal structure. What you're talking about is commercial multifamily. And now everyone's like commercial multifamily. It's terrible. Syndications are bad. Like I personally believe like in the next year, that's probably going to be one of the best buying opportunities, depending on where you live.

10:58But like, that's where the distress is. Like that's where there's going to be good opportunity. No one's going to be talking about it. Cause a lot of the people on social media are the ones who are losing their shirts. But if you want to be the ones to go out and find the good assets, it's what people are talking badly about on social media. those are going to be the good assets in the year to come. I think there's a lot of good deals coming that way. I mean, we've gotten some in Seattle heavy value add from operators that just got in too deep. And there was nothing wrong. They bought what they didn't know.

11:28You know, it wasn't like they're a bad company. They didn't have money. It's just they didn't realize how tough certain neighborhoods with certain types of tenants in there are going to be. You know, that's why we're always going, what are we doing well? And where's the gap? And so like right now, building's really hard. Making money building is hard. Land costs, way up. Debt costs, way up. It's like 2 % to 3 % higher than it was back when the pandemic era was. Build costs are still trending up. All the little war conflict tariffs, all that stuff is still driving up costs. But sale prices are taking longer and they're going down.

12:05And so some builders have been getting caught with things because that's just what happens. You time it wrong. but then the demand just goes, it just goes to the bottom. And so now I'm looking at development sites, whereas I wouldn't even have bought those two years ago. Exactly. Once people start running out of town, that's where you really want to look at it. But then once you find that gap, you have to then build the teams around it to make sure it works well. Because just because it's a good buy, you still have to be able to operate on it. And usually it's a tougher asset class than people think because that's why people are exiting from it.

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15:19Welcome back to On the Market. James and I are talking about how you can find opportunities, even in the places people say you can't find good deals in today's market. Let's jump back in. So how do people do this, James? Like you obviously have a big team. You've been doing this forever. You know that Seattle area, like the back of your hand. For people who are, you know, either new or just normal size investors, like what is the data like specifically, like what should people be looking at to research the opportunities that exist in their market? because it's going to be different market to market.

15:56But how can people identify the right strategies for right now in their individual space? For any investor out there, it's all about tracking the trends. And the thing with tracking the trends is you need that good real estate broker. And I think this is where investors do make mistakes quite a bit, is they hire the person for a discount rather than the information. And I'm a real estate broker, but I have numerous brokers on each team. Right. So any kind of asset class that I'm looking at, I have a broker that's a specialist in it and I'm talking to them regularly about what they're seeing in the market.

16:32A good example is there's three or four dirt brokers that I work with all the time. They know it really well. They know the demand. They know how to look at things. But when I'm talking to them and they're telling me that all of their big builder clients are bailing from deals or walking away, then that creates a huge gap in that specific market. And I start looking there and going, hey, send me all that stuff because it's, you know, like the deal that me and you walk through, that was something that should not have been sold to a person like me. It should have been sold to a developer, but the demand just went down.

17:04That's a perfect example and something everyone can do. Let's just go out and make sure that you have a good agent who understands these things. And this is something like what you're talking about isn't really reflected in any data, right? Like that's not something you can look up on Zillow or Redfin. And that's because, you know, you're in a unique position, obviously, because you own a brokerage. But this is something people can do by working with a good brokerage, right? They can get this information as well. Well, yeah, and they can have their broker. There's a couple of reports you can ask your broker to pull for you.

17:36And that is sales stats reports. What like in a slow market, closing sales really matter. Like what's in demand in a lot of times you can see a trend of going, OK, certain price points in this neighborhood. Like right now, there's a little bit of stink on flipping, right? People are like, you can't make money. It's terrible. It's too hard. But it's because they're looking at the whole ocean. Whereas I want to go find a lake to fish in. And that lake is told by what is in demand from consumers. And that comes from that sale report of going, okay, the market's slow right now. Like in Bellevue, Washington, this is a great neighborhood, great city, very good for resale.

18:16But when the market slows, things come down. And, you know, so a lot of people like, oh, Bellevue's just not doing great. It's not doing great. And it's not that it's not doing great. It's just compressed. But it depends on the price point that you're in. If you're in 1.4 to 1.5 million in that specific area, you will sell your house quickly. And you're going to make great money if you buy right. If you're above that, you're going to be sitting for months and racking up a lot of costs and eating up all your profit. And so, you know, you want to find out where the velocity of the sale prices are.

18:46because there is always a demand because even the stuff that's sitting is different than what we're selling because we're still getting multiple offers on houses too when it's in the right price point. How do people ask for that with a brokerage? I mean, you could just ask them like what price point, what neighborhoods, how specific should people be when they're trying to figure this out? And also, does this work for, not just for flipping, but for if you're buying rentals or some other strategy too? Yeah, because you want to look at what's available inventory, right? Your property manager can also tell you how many units are for rent in a specific area.

19:19For me, if I see a lot of units coming online and their absorption rates takes a lot longer. If I'm seeing rents take 30 to 60 days rather than two weeks to lease up, that's trending that the rental market is going to take a lot longer. But that's also going to tell me because it's bad, they're not going to rush in to go buy stuff like they were doing before, where they would just buy it and it automatically goes up. And so the strategy has to come into play. And so what your broker can always pull you is active inventory. What is sitting on market? That's the first thing I want to know. Like what is not selling?

19:55Not selling in Seattle right now? Dad is with no yards and no parking or anything with lack of amenities. And so, you know, that tells me to avoid that asset class or no one else wants it because everyone's sitting on it. You know, when there's a lot of stuff for sale, no one wants it anymore. That's where I go, okay, well, I'm going to call my deal finder saying, hey, if you come across this lot, let me know about it. And they'll be like, oh, no one wants that anymore. So they get excited. And so I'm always looking for that active report is what's sitting on market and then what does have the shortest conversion rate for closing or for days on market.

20:34Because if your average days on market in King County, for example, is 30 to 40 days, but in a zip code in a neighborhood in a certain price point, there's someone in seven that tells me I can go to that asset class because that's where the demand is. And so it's a supply and demand thing. And once you start with the supply and demand, what do people want inside of asset class that has some stink on it? You know, flipping short term rental. That's where you hit that that magical spot. But there's a tactical thing you need to do there, right? Where you need to develop a plan. There's a reason people don't want short-term rentals right now, right?

21:12Because if you're just going to do a generic short-term rental, you're not going to make money. If you have a great plan, you can make money. I'm sure it's the same thing with flipping, right? Like there's a reason people aren't buying these lots. It's maybe because the playbook they had been running for the last year or two is no longer working with that lot. So when you move to something that other people seem to be afraid of for whatever reason, like how do you, A, decide what you're willing to pay for it? Because that seems like a big, important part. But B, how do you come up with like a unique plan to execute on these areas where other people are not being successful?

21:54Yeah. And I think that's a really important point. You get deal goggles. So like because everyone looks at it a certain way, like, you know, me and you walked a property recently and I didn't even throw out a big flip on this. I go, this is like a cool development flip deal just because of the size of lot and location. But because development's down, no one really wanted it. That was the only way to look at it. Last night, in the last two days, I've kind of uncovered this. I thought that was 100 % the plan. Like doing a little flip and a little development, make the most money. A full renovation actually makes an absurd amount of return on this house.

22:29And so what everyone was, they were just looking at it the wrong way, right? Because a mistake that people make is highest and best use doesn't mean what you can sell it for the most. Like just because you're getting the highest sales price does not mean that's the most profitable. And so I think what we're good at doing is once we see something that we know we can buy for cheaper than we could even 12, 18 months ago, we're not looking at it the same way. It's not a development site because that's not highest and best use. It's I got an old house that's big with a great feature. How do I maximize that?

23:00Well, I'm just going to renovate it, dig down the basement, put together a yard, and it makes a lot more than building five homes on it, which people can't wrap their brain around a lot of times. Like, no, if you can build five homes, you got to build that. but it's actually not highest and best use for the property. And so you need to look at multiple exit strategies for each one of those lots and not look at it the same way because just because the asset class isn't doing well doesn't mean you can't put that plan on a specific type of property. All right, everyone, we got to take one more quick break but we'll be back with James Daynard right after this.