This Could Be the Best Real Estate "Buy" of 2026

0:04Every time we start to think that the market is getting a little less confusing or a little more predictable, some wrench gets thrown into it and everything just feels totally up in the air again. And that can make it difficult to figure out what is actually working in real estate right now, what strategies and what tactics should you be using amongst the constantly changing environment that we're in. But we can help you answer this question. Today, we are bringing on our dear friend, regular panelist, James Daner, to walk us through what's actually working. If you're a regular here, you already know James.

0:44He's on the show all the time. He's the host of the A &E show, Million Dollar Zombie Flip. And he is one of the only investors I know who does every kind of investing. He flips. He does buy and hold. He does development. He's a lender. He does a little bit of everything. And that gives him a unique ability to help us understand what is actually working in this weird and confusing market. Because even though things seem less certain than usual, which is true, things are absolutely still working as James is about to share with us. And by listening to James and understanding what he's doing with his business, you too can figure out how to grow your portfolio and achieve your financial goals even during this confusing market.

1:26Let's bring on James. James, man, thanks for being here. I'm excited to pick your brain because as everyone knows right now, it's been a weird, confusing year in real estate, but you do everything, right? You flip, you do buy and hold, you do BRRRS, you do development, you do private lending, like you do everything. And so I just kind of want to understand from you and have a conversation about what's working, what's not, and what our audience should be thinking about right now. So maybe let's just start with like, what are you feeling about the market today? At least where you operate in Washington?

2:00I feel like ever since the pandemic cool, once rates went up, the market's kind of gone into this weird hills and valleys where it just kind of goes like this. It's moody. It's just a moody teenager. I just feel like it goes up and down, but not that much, but it's just like you never get consistency. No. Yeah. A moody teenager is right. You don't know what you're going to get. And I will say every year, by the end of the year, I'm completely surprised out of all of our businesses, what you're doing the best and what you're doing the worst. What surprised you last year? Like what, what did you think was going to work the best in 25 and what actually worked the best?

2:36I thought flipping was going to be one of the best years to flip in because we kind of came off this like kind of little down and compression and inventory was really low 12 months ago. And going in the spring, I'm like, I remember even talking to you, I was like, there's nothing for sale. Things are pulling up, even with rates. And if you have the right product, it just goes out the door. And all of a sudden, once those tariffs got announced, it slowed down dramatically. And the debt really strangled the deals, market timing. And so flipping ended the flattest by the end of the year. That has been one of the most shocking ones.

3:15And, you know, I think all the short-term investment and development heavy value add was a lot of transitioning. But I thought this was going to be a little bit of a slower spring, and we've sold everything. This spring already. Everything is sold. Like, it's all gone. That's so weird. I think the biggest thing you have to kind of factor into underwriting now is when you're looking at things. It's not the actual facts of the economy. It's how do people feel about the economy. But then how do you make feelings on underwriting? Like it's like the checkbox. Are people happy, sad or confident? Like, does that go into your underwriting adjusted returns?

3:48But it's, you know, I would say that's been the hardest part is we have this kind of ever changing market and the most random things come out of nowhere, like tariffs. So I wasn't expecting that. And it just kind of shocks the market and you have to pivot and change your plan. The thing is, everything's fixable, but you always have to write out whatever inventory you have. So what was that like for you, James? Like you, you said last year wasn't great. Did you have to sell some inventory at a loss, just lower profit margin? And like, how have your margins now shifted into 2026 when it sounds like things are selling at least faster?

4:22Things are definitely faster. And the good thing is when you go through a transitioning market, like we kind of just went through, you change your underwriting. So when things do sell faster, the deals get a lot better, right? Because you're kind of factoring worst case scenario. But what had happened when the market slowed down, I would say one of the biggest mistakes I made was I was being very reactionary because of what we had seen over the last 12 months. Because the previous 12 months, when anything would happen, it would kind of like slow down but then always kind of roll back up. And what we saw after the tariffs is it kind of came down and then flattened and just stayed steady.

4:59There was no kind of roll back up until this early spring. and that was probably one of the biggest things is not be so reactionary and add more debt cost into these deals going forward just for holding just for holding because it's what eats up the the the deal even the deal that we did right pretty flat and if you look at the performa our budget was not very much over and we upgraded it yeah and we hit our arv yeah because our performa arv was 145 that's exactly what we hit right it's what we hit but the middle part the debt cost killed us on that deal. Yeah. Took too long to sell. Exactly. So, but we, we, we definitely took some losses on some houses because that's just part of the game.

5:41Um, I would say the most random, like the deals I thought we would be the worst deals were the best deals and the deals I thought were the best deals were the worst deals, but you just have to kind of make your pivots. And I would say flipping wasn't great. Development was even worse in 2025. Oh really? When buyers become more selective, density is not wanted. People want space. And when there's a limited a buyer pool, you know, a lot of sites that have too many units on one site, they're hard to sell because they're just not that attractive for buyers. Yeah. Just for everyone to understand in Seattle, where James operates and where I live, a lot of the development is building ADUs or taking lots and putting townhomes on them.

6:21So what he means is these aren't, you're not doing single family development, right? You're doing much more density. And that's why, you know, You see that in every market when things start to slow down. Those are the kind of things that get hit a little bit. So you're not doing single family development, are you? Oh, we do some. So those are the best, actually. Really? So it's the density thing. The density was no good. You know, when you're underwriting development in general, you're always going, okay, well, how many units can I get on here? What's your average price per square foot? And it kind of starts to give you the value of the site.

6:53So the more units you have, more square footage, the better the deal looks. but it doesn't tell you how livable and how much people want it. And so going forward, if we're doing development, we're focusing on taking a unit off the site. We don't need to build everything. We need to build with livable, and that's how we have to underwrite it. So when you say development was even worse, were you losing money on those deals, and have you been able to get rid of them? Yes, we've gotten rid of almost all of them. We have some sites coming up, but it definitely made us kind of pivot. Now, we had some home run deals too.

7:24Okay. Like we had one where we did a townhome site in Bellevue, and our original Performa was at ARV and a sell price of$1.9 million. And we sold them for$2.5 million. Woo! That will cover up for a couple losses. You know, it's a great deal. It took a long time because it was a full permit, heavy density, Bellevue, but it was the right product and got the right price. And so that's – I guess my message to like always investors is there's always going to be the bad deal. but you have to look at the whole picture, right? Like if you're doing a certain amount of deals in development, is it working as a whole or is it not?

8:01And so what we've narrowed in is we've just crossed a lot of stuff off our, our, our buy box, like no more super dense sites. It's gotta be livable and they have to be in the right locations. And, but I would say development. Yeah. We took a big hit on a townhome site because too many units, not livable, no parking, lack of amenities. and this is about a 400 grand clip on that deal. So what would you say then to people who are maybe just doing less volume than you? Like, is it a bad time to be a kind of person who does one flip a year, right? Because you might not be able to balance out a bad deal with a home run like you did.

8:43Yeah, when you have all your chips on one deal, you either look really good if you hit the right market or it can really hurt if you hit the wrong market. and a lot of people buy that way they're doing one to two projects at a time and there's nothing wrong with that you just got to make sure you know when you're going through kind of more of a transitioning market or a market that's a little moody little teenage like you got to reduce the risk which is buy what you're good at and what your contractors are good at yeah and that's one thing we really did for 2026 is we have this many contractors they're good at these projects that's what dictates my buy box, not the performance.

9:22So just in summary, you've talked about tariffs, we've talked about the moody market, but it sounds to me what you're saying is it's not actually the cost increases from tariffs that are impacting the business. It's more just like the psychological effect that is impacting demand more than like your input costs. Is that right? It's a combination. I mean, we definitely felt some increases in prices, but you know, the thing about increasing prices is you just change your next budget for your next deal. So you just make it a little bit bigger. And so those are all fixable things. What you don't know is you don't know if a war is going to pop off and people get freaked out or there's supply chain issues.

10:01And those are the things that really will make this market moody. And that's where you just have to kind of go for a higher return. But it's hard in this market to get a very consistent return out of certain asset classes, which are the development and the flipping. Yeah, it's super hard. I mean, I don't do a lot of that, but I just see other people. Disposition is hard right now. It changes week to week. It changes month to month. You don't know what environment you're going to be selling into. If you asked me four weeks ago, is a good time to sell? I would have said yes. End of February, right?

10:35We were touching five, nine in mortgage rates. Four weeks later, it's six, six again. And yeah, for some people, that's a financial burden, especially expensive stuff here in Seattle, that's a big change in your monthly payment. But it's just the psychology of it. You know, that is going to slow down the market. People, you know, they just had something with a five in front of it. Now, seeing a six, six doesn't feel great. I mean, I feel the same way. So I don't blame it. I actually personally think we're going to be in for a very slow spring season, but I'm glad to hear things are selling for you.

11:07You know, that's the thing that is so hard about this and get why it's so hard to get consistent returns because in all reality, buyers should have been buying a lot more in August because the rates were lower and pricing was lower. Now pricing's up a little bit in the springtime and the rates are higher and we're still selling. That's what the logic has gone. Well, this has been super helpful on sort of the development flipping side. I do. Let's turn and talk about some buy and hold stuff because you do that as well. But we got to take a quick break. We'll be right back. What if I told you you could forget everything you know about investment property loans because Host Financial is rewriting the rulebook, tossing out those pesky DTI restrictions.

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13:38Welcome back to On The Market. James and I are here talking about how things are going, what to do in this confusing market, what strategies are up, what are down. We talked a little bit before the break about flipping and development, how they've been hard. It sounds like you've navigated your way through them, James. But what's your read on the buy and hold market right now? You know, the buy and hold market, I actually think there's a lot of potential there, you know, but it all depends on your strategy. And the thing that I've seen recently is like the BRRRR single families are back as far as a strategy goes.

14:14You just have to put another step in. And so, you know, for 2026, I'm actually trying to pick up 10 BRRRR properties. What's the extra step? The extra step is you don't cash flow for the first 10. You just have to be prepared to factor a small negative in to create the equity. And so like what I'm doing is I want to pick up some more units, but I want to keep my capital. So I'm going through and trying to pick up burrs. And as long as they're within like$100 to$200 negative per property, I'm okay. Because the goal is to create the 20 % equity. and there is opportunity right now on especially little, small, cheap, heavy fixers.

14:56And then I'm really just house banking them and I'm gonna build up 10 and then do a giant 1031 exchange because it can get me into that next asset class, which we're seeing the best buys on. And that's your small multifamily, like 15 to 25 units, heavy value add. Those have been the best buys of 2025. Oh, interesting. Okay, so let me just recap this strategy. So you're saying you're gonna go out buy 10 buy and hold properties. And you think you get a 20 % equity return on each of those? If it doesn't hit the 20 % equity return, I'm not buying it. Okay. So that's your goal. And so basically if you do 10 of those, even though you'll be losing across these a thousand bucks, 2000 bucks a month, right?

15:40If you do 10 of them, so you're going to be losing 15, 25 grand, whatever it is, something like that per year doing 20 % equity bumps on these projects, which I assume, I mean, what are you buying them for? You know, typically it's about$350. That's about the purchase price. What we're trying, I would say the average exit would, when we're done fixing them, there are$450 to$550 is the range I'm trying to stay in because that's kind of the magical number to be in that couple hundred dollar a month negative. Okay. And then what would you walk with? You sell all 10 of these and do a 1031. How much equity you got?

16:14So after selling costs, so the goal is if I can get 10 homes at an average value of 500 grand with 20 % equity position, and the goal is to try to get 25%. That's really the number I'm chasing because that's a flip return. But if I can get to 20 even, which is 5 % less than I want to be, that can create a million dollars in equity. And that million dollars in equity after sell costs is really more like 600 grand. But what that does is it gives me 600 grand to go buy a$2 million apartment deal. Tax-free. Tax-free and at the deepest discount that will cash flow because that's where we see is no man's land in Seattle.

16:52So just for our audience, because I think for regular, you're not a regular person. Regular people who buy 10 properties in a year are probably not going to do that. Can someone, like you just said, the sweet spots, 12, 20 units, like should people be looking at just going straight into that if they have the capital or maybe doing a 1031 from something in their existing portfolio? Asking for a friend because I have two 1031s coming up. Yeah, that is where we've seen the least amount of competition. And so, you know, I think the key to going in any transitioning market is chase what no one else is chasing.

17:29Like right now, people want to build daddus. They want to do density on houses. Everyone's chasing the single family lot, especially with our new up zoning. Whereas I'm going, well, who wants to buy not great cash flow? Because when you look at these, they're not great cash flow because you have to put so much cash down. But if I can defer and move the money over, the cash flow becomes real. And most importantly, I can create a very big equity position because once you start creating 20 % on a$3 million building, I mean, that's 600 grand you can create just by renovating a building. That's the sweet spot you're saying you're going to try and make 600 grand by buying a 12 to 20 unit.

18:08Yeah. So the goal would be to get BRRRS, create the 20 % equity, create 600 grand in down payment money, then 1031 into another building that I can then create another 20 % equity. So those BRRRRs can double its money over a 24-month period. I mean, that's very good. I would love to see that. But for people who aren't going to do all these BRRRRs, do you think this small multifamily is a good move regardless of how you fund it? Oh, for sure. I mean, that is another no man's land. Two to four units right now. Mathematically, they don't really pencil that well. No, they're terrible. It's BiggerPockets' fault.

18:44We ruined it. It's not good. it's uh like when you look around you're like even when you see and you're like that's a great price you run the numbers you're like oh this this is terrible dude i was doing it yesterday the package of five of them or something and it is a good price the cap rate's good but like when you do the numbers it's just not exciting enough it's not worth the the effort or the risk so i'm seeing the same thing i see better deals they are getting better but they're still not good i would say like is kind of the way I've been, why I'm trying to be patient. But you're not the only person who said this.

19:17We've had Brian Burke on quite a few times, who's famously timed the market very well with multifamily. And he says, right now, he thinks the eight to 25 unit is the sweet spot. So it sounds like you guys agree on that. Do you have any advice on how to go out and find those? Because what you look at on CoStar isn't great. Are you finding these deals off market? The best way you can find those kind of deals is to network with commercial brokers. Okay. Because they are always out there pounding the phone. I don't even worry about wholesalers at that point because it's really like commercial brokers know how to look at things.

19:50And they really do follow up with the same neighborhoods. And so the best thing you can do is get feed up with like 10 to 15 commercial brokers that sell multifamily. And they'll float you stuff all the time. I mean, I probably get 10 to 12 deals sent to me a month off market at least. Yeah. That, I would say, is the best way to do it or honestly expired listings. Yeah. Even on commercial. I would say expired and canceled listings, which I can't even believe is coming out of my mouth. Because, you know, everyone talks about that off market. And it's typically a waste of time, in my opinion. But that has been one of the best places to look.

20:23Because people want to sell. They just didn't get the offer. It's crazy. Like the one we worked on together that was flat. We basically broke even on it. It's crazy to me that no one made us an offer. No one even made us an insulting offer for like six months. Isn't that unusual? like are people just scared to do that now yeah i don't know it's like they don't really know if they want it or not either they're gung-ho and they'll throw you the most offensive offer yeah uh well you know what it's not even offensive i'm always like oh this offer's really low i'm like i can't blame them for asking yeah right but yeah that was what was so weird and that's where you get frozen because i'm like i don't want to cut price just to get low offers because we're just trying to leave where we're at so we can drag the offer in and so that's where you can kind of get stalled out.

21:07Okay. So that's James's thoughts about buy and hold right now. It sounds like you agree with Brian Burke. It's commercial real estate, so it's above four units, but it's not big enough that you're getting the institutional people in. That's kind of the sweet spot that I think we've been talking about a lot and that's super interesting. But I want to get some advice from you for newer investors because this kind of stuff, taking down a big project like that, doing 10 burrs at a time, probably not for a new investor. So let's hear your advice on that right after this quick break. People love to call real estate passive income, which is interesting because most of the investors I know are very busy.

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