BiggerPockets Real Estate Podcast - Episode Summary Title: You Could Have More Equity Than You Think! (How to Use It)
Release Date: July 16, 2025
Hosts: Dave Meyer & James Dainard
Duration: Approximately 40 minutes

Introduction and Episode Overview

In this insightful episode of the BiggerPockets Real Estate Podcast, host Dave Meyer welcomes seasoned real estate investor James Dainard to address pressing questions from the BiggerPockets community. The primary focus revolves around effectively leveraging unexpected property equity, navigating interior design choices during renovations, evaluating the viability of the 1% rule in today’s market, and exploring private money lending as a real estate investment strategy.

1. Leveraging Unexpected Property Appraisal (00:00 - 04:15)

Katie Enrichment's Scenario: Katie purchased a duplex below the asking price ($340k) with projected rents of $3,000/month and opted for a DSCR-based financing at 25% LTV. However, the property appraised higher than anticipated at $407k.

James Dainard’s Insights: James emphasizes the importance of using leverage wisely.

“You want to use leverage correctly... If I refinance, I just want it to break even” (02:17).

He advises against over-leveraging to ensure continued positive cash flow, cautioning against the pitfalls experienced during the 2008 financial crisis. Instead, James recommends:

• Refinancing Strategically: Only extract equity if it aligns with investment goals.
• Assessing Investment Plans: Determine if the additional funds will be used to acquire more properties or for other growth strategies.
• Maintaining Cash Flow: Avoid taking on excessive debt that could impair monthly returns.

Dave Meyer’s Agreement: Dave concurs, highlighting the flexibility of refinancing and utilizing lines of credit while maintaining financial prudence.

“You can get a line of credit against the property to go borrow against all this equity that you have sitting in this property” (03:49).

2. Navigating Interior Design in Renovations (07:14 - 12:55)

Tio Sam’s Challenge: As a contractor flipping a property, Tio seeks advice on selecting interior design elements like bathroom tiles, paint colors, and fixtures within a limited budget.

James Dainard’s Approach: James shares practical strategies to manage interior design without overspending:

• Utilize Comparable Listings:

  “Take the comps that you used or actives that are pending or in the same price point, go drive them with your broker and then make a spec list for it” (09:20).

• Leverage Design Resources:
  Collaborate with brokers who have design backgrounds or utilize in-house designers from flooring and tile suppliers to get free or affordable design services.

• Standardized Costing:
  Develop a standardized spreadsheet that outlines installation rates based on local market data.

  “We have a spreadsheet that really breaks down standardized install rates throughout our market” (25:51).

• Prioritize Cosmetic Upgrades:
  Focus on upgrades that enhance visual appeal without extensive structural changes, such as paint, millwork, and trim.

Dave Meyer’s Recap: Dave summarizes James’s advice, emphasizing the importance of aligning design quality with market expectations to remain competitive.

“You're probably going to tour similar houses, and you want to make sure that you're essentially at least matching the quality and probably something relatively similar in style” (11:39).

3. Exploring Private Money Lending as an Investment Strategy (12:55 - 22:11)

Jonathan’s Inquiry: Jonathan expresses interest in private lending as a way to diversify his investment portfolio, seeking guidance on initiating this venture.

James Dainard’s Recommendations: James outlines a step-by-step approach to starting in private money lending:

1. Legal Framework:
   Consult with securities and real estate attorneys to draft solid loan contracts that protect your investments.

   “Go talk to a securities attorney and a real estate attorney... make sure your documents are good” (14:04).

2. Build an Underwriting Team:
   Partner with local brokers to accurately assess property values and loan-to-value ratios, ensuring sound underwriting practices.

3. Target Experienced Operators:
   Focus on lending to seasoned investors or developers with a proven track record to mitigate risk.

   “Look for the bigger guys, because the first people you're going to find... they're going to be a lot newer” (17:14).

4. Understand Loan Positions:
   Prioritize first-position loans for lower risk and consider second-position loans only if adequately compensated for the increased risk.

Dave Meyer’s Summary: Dave reiterates the critical steps James provided, highlighting the necessity of proper documentation, reliable underwriting support, and focusing on experienced borrowers to ensure successful private lending endeavors.

“James said, first thing that you should do is talk to a relevant attorney... second thing James said was finding someone to help you underwrite that deal” (17:14).

Additional Insights: James cautions about the high tax implications associated with private money lending and underscores the need for thorough due diligence to prevent significant financial losses.

“Private money lending is great if you don't want to deal with tenant headaches because you actually make more on your return as far as cash flow goes. But it is high tax so you got to watch that too” (22:11).

4. Mastering Rehab Budgeting and Cost Estimation (22:11 - 33:04)

Deborah’s Dilemma: Deborah struggles with accurately estimating rehab costs for her flips, encountering unexpected expenses that erode her budgets and profits.

James Dainard’s Strategies: James provides a robust framework for budgeting rehab projects effectively:

• Develop Standardized Install Rates:
  Create spreadsheets with local cost benchmarks for various installations (e.g., $2.25/sqft for engineered hardwood).

• Categorize by Property Era:
  Adjust budget estimates based on the property’s age, recognizing that older homes typically incur higher renovation costs.

  “For a 1920s house, we run that at $110 a square foot... For 1950s, $80/sqft; 1970s, $70/sqft” (28:37).

• Include Contingencies:
  Always add a 10-15% contingency for unforeseen expenses, especially in projects outside of your experience.

• Limit Structural Changes:
  Avoid extensive modifications to floor plans to reduce permit complexities and unexpected costs.

  “The less manipulating you have to do of a footprint, the much more seamless your project is going to go” (30:08).

• Obtain Multiple Quotes:
  Secure at least three quotes from contractors for each project component to ensure competitive pricing and minimize variance.

Dave Meyer’s Reflection: Dave highlights the importance of meticulous budgeting and acknowledges the time investment required to obtain accurate cost estimates.

“It seems time consuming though, right?... but that's kind of the whole business, right? Like that's what you got to do it” (32:51).

James’s Additional Advice: James emphasizes building relationships with contractors who can offer competitive pricing and adapt to market conditions, thereby safeguarding against budget overruns.

“Always look for the gaps... that's what's going to work” (32:35).

5. Reevaluating the 1% Rule in Today’s Market (33:04 - 37:56)

Anthony’s Question: Anthony questions the relevance of the 1% rule—where a property's monthly rent should be at least 1% of its purchase price—in Arizona’s current real estate climate.

James Dainard’s Perspective: James suggests using the 1% rule as an initial screening tool rather than a strict requirement. He advocates for a deeper analysis of each property’s potential for appreciation and market-specific factors.

“It's about the 1% cash flow. But I'm going to really research more appreciation zoning upside on the property” (34:10).

Dave Meyer’s Analysis: Dave challenges the rigid application of the 1% rule, pointing out that the national average rent-to-price ratio is approximately 0.55, which is below the 1% benchmark. He advises investors to:

• Adapt to Market Conditions: Recognize that in high-cost areas like Phoenix or Seattle, the 1% rule may not be feasible without significant renovations or focusing on value-add strategies.

• Seek Alternative Metrics: Consider other investment metrics such as cash-on-cash return, capitalization rates, and potential for property appreciation.

“I think a lot of people get sort of anchored to this idea that 1%. They have to have 1%... unless you're maybe in the Midwest, Midwest, some parts of western New York” (35:05).

James’s Additional Insights: James underscores the importance of aligning investment strategies with current market dynamics and personal financial goals. He highlights that while the 1% rule served well in past investment climates, today's high-interest rates and property prices necessitate more flexible approaches.

“You have to pivot for this era... you have to build the plan around what you have today” (37:08).

Conclusion and Key Takeaways (37:56 - 40:00)

As the episode wraps up, both Dave and James reinforce the value of adapting investment strategies to current market conditions, the importance of thorough due diligence, and the benefits of leveraging community resources like BiggerPockets forums and meetups. James attributes his ability to answer investor questions to the lessons learned from his own past mistakes, emphasizing continuous learning and experience.

“The reason I can answer half these questions is because I already made the mistakes” (38:47).

Notable Quotes with Timestamps

• James Dainard on Leveraging:
  “You want to use leverage correctly... If I refinance, I just want it to break even” (02:17).

• James Dainard on Interior Design:
  “Take the comps that you used or actives that are pending or in the same price point, go drive them with your broker and then make a spec list for it” (09:20).

• James Dainard on Private Lending:
  “Go talk to a securities attorney and a real estate attorney... make sure your documents are good” (14:04).

• James Dainard on Rehab Budgeting:
  “We have a spreadsheet that really breaks down standardized install rates throughout our market” (25:51).

• Dave Meyer on the 1% Rule:
  “I think a lot of people get sort of anchored to this idea that 1%. They have to have 1%... unless you're maybe in the Midwest, Midwest, some parts of western New York” (35:05).

Final Thoughts

This episode serves as a valuable resource for both novice and experienced real estate investors, offering practical advice on maximizing property equity, making informed renovation decisions, assessing investment strategies in varying markets, and exploring alternative income streams through private lending. James Dainard’s expert insights, combined with Dave Meyer’s facilitation, provide listeners with actionable strategies to navigate the complexities of today’s real estate landscape effectively.

For more in-depth discussions and personalized advice, listeners are encouraged to engage with the BiggerPockets community forums and utilize the platform's extensive resources.