BiggerPockets Real Estate Podcast - 896: The Renovations That’ll Instantly Increase Your Home Value (Part 1) w/James Dainard and Jessie Rodriguez

Episode Date: February 19, 2024

Which home renovations will boost your property’s value and put you in a better position to sell? Or, if you’re not selling, how do you rake in even more equity during a hot housing market? If you have some time, a bit of money, and the knowledge from this episode, you can instantly increase your home value through some standard home renovations. But we’re not just talking about replacing the roof (although we DO talk about that); we’re getting into the nitty gritty of exterior home renovations that’ll truly make you richer. So, how did we come up with the best bang-for-buck home renovation list? Easy—we didn’t! We just asked pro flippers James Dainard and Jessie Rodriguez to do it for us. Both of these investing veterans have flipped hundreds of houses. They know what’s worth the cost and, more importantly, what isn’t. Together, they drop some time-tested gems on the home renovation hit list that’ll turn your outdated home into an up-to-date masterpiece and bring about bidding wars. Stick around because we’re going to share the renovations that will give you a 100% ROI, the easy fixes that, when not addressed, can cost you tens of thousands, and the simple upgrades that’ll make your home stand out from the competition! In This Episode We Cover: The best bang-for-buck home renovations that will increase your property’s value The 100% ROI renovation that most flippers will overlook but buyers LOVE to see How to avoid paying a HUGE seller concession by upgrading this key part of your home David’s most hated part of a home that has ruined many past deals for him and his clients Termites, dry rot, and how to take care of them in a cheaper, better way than calling the pest control company  The simple exterior upgrade that makes your home stand out when selling  And So Much More! Links from the Show Find an Agent Find a Lender BiggerPockets Youtube Channel BiggerPockets Forums BiggerPockets Pro Membership BiggerPockets Bookstore BiggerPockets Bootcamps BiggerPockets Podcast BiggerPockets Merch Join BiggerPockets for FREE Learn About Real Estate, The Housing Market, and Money Management with The BiggerPockets Podcasts Get More Deals Done with The BiggerPockets Investing Tools Find a BiggerPockets Real Estate Meetup in Your Area Expand Your Investing Knowledge With the BiggerPockets Books Be a Guest on the BiggerPockets Podcast Grab Dave’s New Book, “Real Estate by the Numbers” Hear James on The “On the Market” Podcast David's BiggerPockets Profile David's Instagram: @davidgreene24 BiggerPockets' Instagram Unbelievable Returns from Flipping This New Type of Real Estate Did High Interest Rates Kill House Flipping? Connect with James James' BiggerPockets Profile James' Instagram: @jdainflips Connect with Jessie Jesse's Instagram: @jessierodriguez Jesse's LinkedIn Jesse's Website Click here to listen to the full episode: https://www.biggerpockets.com/blog/real-estate-896 Interested in learning more about today’s sponsors or becoming a BiggerPockets partner yourself? Email [e-mail]. Learn more about your ad choices. Visit megaphone.fm/adchoices

This is the Bigger Pockets podcast show 896. What's going on, everyone? This is David Green, your host of the Bigger Pockets Real Estate podcast. Here today with a banger episode for all of you. We're going to be talking about renovations that will actually add value to your home. Something's going to be useful for your average homeowner, somebody who wants to sell their house for more money, house flippers, or real estate investors. We've got something for all of you on a topic that is very rarely covered.

This is actually a two-part episode. and today we're going to be covering renovations that add value to your home on the exterior. Later this week on Thursday, we're going to be covering interior renovations that will add value to your property. Today we're talking with Maverick investor Jesse Rodriguez and James Dainard. Combined these two have completed hundreds of flips, so they're going to be discussing everything that they look to add value and get a home sold. Let's get after it. I couldn't get Jesse James, so instead I brought Jesse and James to make a fire real estate podcast.

Jesse, welcome to the show. remind us what market are you in? I'm based in Southern California, brother. So excited to be here again. Didn't think I'd be on bigger pockets for the third time. So let's go. Yeah, yeah, that's right. You're actually, James is in SoCal too.

So we've got the Jesse James connection. James left Washington. He moved down into, where are you in Huntington Beach or Newport Beach, James? We're in Newport Beach, but everything I still do is in the rainy Pacific Northwest. Other than just getting the tan that you're getting and sitting in your yacht while you record a podcast, not a bad life. It's actually raining today, though.

So, James, thanks for bringing the rain down to Southern California. Dude, it's a very Seattle day. I feel like I'm in Gilligan's Island right now on the boat. Nicely done, James. All right, Jesse, tell me about how many flips you're doing a year right now. I've got nine going actively right now, active rehabs. I'm hitting about 35 a year. You know, slowed down a couple years ago, really been ramping up since, you know, second quarter of last year.

Really caught my stride again. It's loving it. Kind of fell back in love with flipping. It got a little tough a few years ago. I think we all know that. Clean stuff up and man, just like hitting it hard and, and like thorough and efficient and realizing how damn expensive all the material is

and the construction that I just wasn't paying attention to. Right? I'm like that grumpy old man now. I'm like a pre-hung door is $180. Are you kidding me? I totally hear you. Are you doing all your flips in Southern California? Yeah,

also California. based about a million, a million plus price point. So we're going to get into some of the details of what you're doing here. So everybody take notes because this is going to be a very good show if you want to learn about how real estate is valued and how you add value to it. But before I do, I just want to make a little point here. It is so hard for me to see the value of real estate going down when the cost of all the pieces that you need to make it keep going up.

Like you just said, the materials are expensive, the labor is more expensive, the regulation is getting harder and harder and harder. It is wild to me when I see when you try to go through a city to get permits for something, how challenging they make it, and then how quickly they'll catch you if you try to go around that, that all becomes a cost and expense associated with real estate. So I see we're kind of moving into a market where real estate maybe isn't something that cash flows as well, obviously, which is why flipping is a good alternative to consider here. But it's going to be a great storage of wealth.

You put your money into it and it's going to continue to continue to. to increase. It almost has to because of inflation and how much everything costs in order to make homes or make homes nicer. So on that note, let's talk about the exterior of the house and how you can add value to the house and how much you can expect to pay. How much is a brand new roof cost and how much value do you typically see that that adds? So I'm seeing, let's say like a 1500 to 2,000 square foot kind of entry level home, three bed, two bath. Roos are about 17 to 22,000 bucks plus permit costs. It's hard to put a value on it to me a lot of times. It's more like it's defense and offense is the way I see the roof, right? I'm trying to get ahead of the next buyer hitting me for a 50,000

or 40,000 or price drop because they're going with some roofer that's, you know, exorbitant in the cost. So it's a little bit of defense in the beginning, working with someone that I have a more affordable cost in that $17,000, $18,000 range. And then helping to make sure that I hit the target value because of it. Because the worst thing is that you think you're getting your sales price when you're flipping. And then you get hit with all these price drops because of quality of work. And then that buyer is going retail on all their bids. And now they're trying to get you for a huge price reduction. So I kind of consider roofs as like a defensive mechanism. Yeah, that's a great point. Roofs are one of the things that I've definitely seen as a real estate agent selling homes.

If it's in bad shape, it's almost guaranteed that's some form of a seller credit or it's a reduction in price. Like you're not getting away from that. You're not going away from electrical issues, plumbing leaks, foundation issues, dry rot, termites, and roofs. Those are like your big five that I'm like, dude, if anything goes wrong there, you're going to take it in the shorts. What do you think, James? What have you seen? Yeah, I mean, roofs are one of those things that is just a need, right? The buyers, and I think today, you know, like we referenced, everything's really expensive. And buyers that are transacting in today's market right now, they want to buy this property, put their 20% down, maybe 10, 20% down, and they don't want to come up with

any more money because their payment is so high. So, you know, one of those, as you're flipping homes, you want to take care of those needs. You don't want to have that end buyer thinking about all the extra money they have to put into your property or they kind of move on to the next one. And so it's something that you want to work in your scope of work. But it also depends on what you're trying to sell too, because sometimes we're flipping homes where they're wholesale, where we're just trying to clean them up, get them clean, and then putting them back to market. And we'll let that buyer do that, that roof because they're getting the value there. So if you're trying to go to the highest and best, I think roofs have to get done. Mechanicals have to get done. And the costs have definitely

jumped because the cost of asphalt shingles has, I think it's almost doubled in the last 24 months, or it's been up at least 50%. But, you know, typically on average for us, at least we're paying less than Jesse in the Pacific Northwest for 1,500,000 square feet. You know, depending on whether it's a rambler or two-story, that's going to throw your numbers way off. But typically that's going to cost us about 15 grand. It's about 350 bucks a square, for you square. that you have to do throughout your property. Now, I've done a lot of houses. How do you calculate that? I don't know. I have to eyeball it in my roofer has to tell me. But typically it's going to be about 350 to 400 to square. And if you want to go metal to make it, that's where you're going to

upgrade that curb appeal. You're going to be a five to 600. So there's kind of the two things with roofs. You go for that basic roof, the necessity, or you go for that sexy roof, which is like that metal first impression, where that could drive your price up. And we do that on a lot of luxury flips. You know, and I see that like the prices. So in Texas, I do a lot of work. not flips, but selling for a fund. And a roof out there's $8,000. Not for the same house, which I find it would be so interesting, right? And I don't know if it's here in California because we don't get a lot of rain.

Rufers don't have a lot of business. So there's a premium on, they finally get on a roof and they're like, okay, I need to make up for the fact. Do you think because you're in Washington and it rains so much, like roofers are constantly busy, that cost is a little bit lower? I think that's part of it. And I think, you know, it's also just the market that you're in, right? Like I call it zip code bidding. like if you're in LA proper, when a roofer comes out or any trades coming out and they see that Beverly Hills zip code, your price is going up 20, 30%.

Or, you know, if we're like in Washington, if we're in Bellevue, Medina, which is our better market, you're going to get that zip code pricing. But, you know, like if you're in more of the rules, it's going to go down. And so I think some of it has to come down to how is it regulated? What's the cost? Like I know in California, you have to have a lot more liability insurance for contractors. You've got a lot more regulation. you have to build that into your pricing. And so I think I do with state regulation and then the zip code that you're in. I mean, contractors, just like investors, right? They're going to negotiate the best

price. And if you're an expensive area, they're going to try to get you for that for that extra cost. Great point. Yeah. There's a quick tip for you there, folks. If you're in Beverly Hills, don't look up Beverly Hills Roofer. If you're in Scottsdale, Arizona, do not look up Scottsdale, Arizona, whatever. You look up something in Phoenix. You look up something in Riverside and you find a person that commute out there later in the day when they're not in the traffic and you come in at 30% of what the bid was in Beverly Hills. That's a great point. Totally. All right, we're going to take a quick break, but stick around. We'll get into more of James and Jesse's bang for your buck updates. Plus, is curb appeal overrated? More right after this break. Do you ever notice how every

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through your pro account to get started. RentReady helps ensure on-time rent with auto reminders, keeps communication professional, and lets you post listings to multiple sites. Check it out at rentready.com slash bigger pockets. That's rent-r-r-re-d-com.com Figger Pockets. And welcome back, everybody. I'm here with Jesse Rodriguez and James Dainard to outrageously successful and experienced home flippers. And they're spilling all their secrets about the renovations that you can make that will

actually add value to your home. All right. What about curb appeal and landscaping? It's very popular at HGTV. Does this translate into real world value in your world, Jesse? Yes, that 100% is you're playing offense. There's a big bang for your buck. You do something like decompose granite, sods inexpensive, you know, California native plants.

And just the curb appeal when you pull up, like the person I find has to fall in love with the house from the second they pull up, then they get into the house. And then you have to get to the backyard, right? And you need to finish all parts. It's always depending on the market. Right now, the market seems to be really hot, lots of offers again. So you can cut corners on stuff or you can hotel deals. But if you're looking at a market like a year and a half ago, where it was a little bit harder and you really were trying

to get your top dollars still, you had to take it through everything. And I find that the cost, like, you know what, you could do a really nice landscaping, bring in a fire pit, you know, make some like an oasis type space. Because since COVID, people are home so much more. A lot of people are still working from home. You want to feel like you're in your own retreat. And, you know, you could spend $15,000 to $25,000, but push a $75,000 or $100,000 upside value because we know that landscaping could cost $100,000 for landscaping and hardscaping. So I think as a flipper that has better contractors and better pricing, you get, you least get double your what you put into it in the market scenario. What happened from the pandemic was the staycation

demand. You know, you couldn't leave your house. People were hanging out their houses and people wanted it to be a vibe. And we've seen a massive premium for landscaping and staycation hardscaping in our, in our landscaping proposals. We've pretty much tripled our budgets for a lot of our flips because the return is so good. And they're good mathematical returns too. Like, you can put in, at least in Washington, a paver patio. It's going to cost you $20 a square foot, roughly. And you could put in a 200 square foot patio. The cost on that, what is that, 200 times 20, that's $8,000, right, for that patio.

But by building in and creating those spaces, people will pay you a 5% premium is what we're seeing for a lot of these upgrades on their landscaping. The good thing about landscaping is you can put a lot of bang for your buck into it, and people will pay you a premium. Like 5, 10% over is what we're seeing. seen. And they're little cheap upgrades that you can do to maximize that value, the paper patios. You can buy a barbecue off clearance and then build a wood frame tiled barbecue setup. And it cost you about $1,500 just to frame it, put the material on, drop the fireplace

in, and people fall in love. And that's what people want. As they're spending a lot of money right now in their mortgage payment, they want to know that they can have their vacation in the backyard and they don't have to pay for another one. Now, let's add in here, this would definitely apply to the more higher end properties, what we might call a luxury property. If you're talking about $110,000 property somewhere in Nebraska, I don't think it's going to be, you're not going to get as much bang for your buck, but that's some great points. Now, this next question is a bit of a sore spot to me as a real estate broker. I've got some strong opinions on it, but Jesse, I want to start getting yours.

Does adding a deck to the home add value when you go to sell a property? I'd say based on where I'm at in Southern California, I don't think in, you know, the 400 flip I've done, I maybe have added five decks. So I'm not, I'm not a deck guy because I don't, you know, I'm flat land. You come right out of your slider, you know, you're going right on to concrete, or a DG. So I don't know if that's going to give enough value, right? I don't know if there's areas that it's more specific, but I'm not, I don't know. I honestly have no clue, David. I'm not a deck guy. Yeah. What about you, James? You're, you got some stuff going on in the northwest. There's a little more rain. Also, I noticed decks are more common in houses that are built on

hills or uneven landscaping, right? Like track homes rarely have that, but when you get into some of those properties that are built on a hillside, decks become much more common. What's your experience with that? Do they add value to a property? They definitely add value. And one thing to think about, too, they add complexity to your job, too, because the one issue is with decks, and we've ran into this a lot of times, is when you're permitting

a project, you're going outside the building footprint when you're doing a deck. And they actually can add a lot of delays and not just cost on building the deck, but the cost money while you're sitting there waiting for the permits and then building it out, but we still do them because, again, people want that outdoor vibe and they want an experience in their backyard. Many of the homes that we have built in Seattle, they're not on flat. Seattle's a very hilly city in general. And so, you know, if you have a two-story house, you want to have flow to your outside because flow and feel to a buyer, that those are those tangible things that a lot of flippers

aren't thinking about. They're like, I need to upgrade the cabinets, I need to upgrade the appliances, but they forget about that natural light. How do they live in the house? How can they enjoy the outside? What's that transition through that dining room? And if you have the right flow in a house, it can pay you massive premiums.

And so many times we have two-story houses. We have a dining room. We want to give it that indoor, outdoor feel. And then with the pricing that it's gone up now, good thing in Seattle is we got a lot of rain. We can actually waterproof those decks, and it does cost us about double what it would just for a wood frame deck. But by giving that basement, that indoor, outdoor feel,

buyers will pay more because they can use their outside. a lot more than they could regularly. In Seattle, you're only going to use your outside 20% of the year, but if you have an undercover deck, you can enjoy it more. And so by adding those amenities, people fall in love. And when people fall in love, that's when they put cash in your pocket and pay a lot more for your property. So let's get into that point right there,

because here is one of the misconceptions I'll clear up. When you're watching HGTV or when you're inexperienced with how real estate is valued, you typically look at the upgrade and you try to turn it into a monetary amount. out. If I add crown molding, how much will that make my house worth? If I add a deck, how much will that make my house worth? If I change the flooring, how much will that make my house worth? But those of us that actually work in real estate understand, it's not an Excel spreadsheet type formula. It really just matters how much the buyer wants those things or where your comps are and is that upgrade putting you to a comp where you do have a hard number. How do you two go about

when you're looking at spending money on something determining if it's worth the investment, You can't just say, well, if I spend $20,000 on a deck, it makes all the houses around here worth $40,000 more. I think I start with like the functionality side of it first and then I put the dollar value. So like to talk about decks as we were thinking about it saying it, I was like, wait, I just ripped out a deck. Like for here in California, I bought a house with a deck, ripped it out because I didn't like how it reduced the size of the backyard.

So I look at the functionality there and I say, I think any buyer that walks into this place is going to feel that this 7,500 square foot lot feels smaller than it really is. So I take that out, cost me, you know, four or five grand for the demo and the haul off and all that. But I feel like that's going to increase the value because look, I spent more money removing it. Now I have to put landscaping and concrete in. So it actually cost me maybe $15,000, $17,000 to do this instead of keeping it. Or somebody would say, hey, it's cheaper to keep it. It's actually going to hurt our value because in California, people want pools in their backyards. So it's like, I need to remove that deck to create enough space so

someone can visualize later on that they can add the pool. So I kind of take that functionality level first, then look at the dollar cost, and then I realize, am I going to hurt my buyer pool because I'm trying to save money, which then is going to reduce the future value and my potential profit. So I usually try to look for a two to one ratio. If I'm spending 17, can I make 35? Can I make 34? Good point. James, how do you look at those things where someone says, hey, I got this opportunity? Do I want to put the chandelier? Do I want to do this extra upgrade? that's not needed, how do I know if I'm going to get my money back out of that? So we are just math guys, and we go through comps, comparables for the property, and we like to

list out all the amenities. Based on those amenities is going to dictate our scope of work. We never gut check. You know, I'm not going to add a deck just because I think it's better for the house. I'm going to look at my comparables and go, okay, what is my house missing? Am I missing an outdoor space compared to the comparable that might have a paver patio? They might have, you know, some undercover spaces, or maybe they have. have a deck and we want to match that scope of work,

but we won't ever, ever just gut check it unless we're in a declining flat market and we feel that it might help us sell faster for that next buyer. Then we'll consider it. But for us, any upgrade, it doesn't matter if it's cabinets, appliances, flooring, decks,

anything we want to get tangible numbers on it. That's by pulling comparables, like for like product, going through every picture. And we tour properties too. We want to feel, do we need to upgrade these appliances, do we need to upgrade these spaces? And if the comps say no, we're not doing them. You know, everyone wants an open kitchen, but if every comp I have has a walled off kitchen,

we're leaving that wall. Because as investors and flippers, we're not speculating. We're putting together a plan that we can verify. The comps give us that plan to verify. And the more you speculate, the more you're going to lose typically because there's no data. The appraisers aren't going to understand it. Buyers won't understand it. It's just, it's going to cost you more. is just best to price accordingly with the right scope of work. Good. Let me translate that for everyone who's not a professional house flipper because, James, you use so many big words there.

This is why you have Gilligan's yacht. When the appraiser is determining how much your property is worth, they're just going to look at the comparable sales and say, well, that house had similar upgrades or finishings and it was worth $900,000. So this house is worth $900,000. So what you really want to do is work backwards. You look at the competition. You say, what kind of floor do they have?

Do they have a deck? Do they have the chandelier? And then you make yours look as close to that one as you can while also considering how many buyers is this going to attract, right? It's not a thing that you can turn into just a A equals B type of thing. You have to know what buyers in your market want. If they don't value those things, they're not going to pay more just because you put it in. But if they do value those things and there's not anything else that has it, you're much more likely to get several offers, which allows you to drive the price up, which can get you that really big return. But it's a little less simple than I think people.

people want to believe. Now, my issue with decks in general is that they freaking blow up sales. I can't think in my whole career selling over a thousand houses of a deck that ever was in good shape when the inspection was done on it. Right? Like, you guys are selling brand new decks, so they're not issues for you. When the person who buys that house goes to sell it 20 years later, a hundred percent of the time, the home inspector says, oh, the whole deck needs to be taken out, and a new one needs to be put in, and it's going to be $35,000. And now we have a major issue when it comes to negotiating. So decks and solar panels have just become my nemesises.

They never go away. It's like whatever Spider-Man's made. That bad guy keeps showing up every single time. So when you buy a property with something like that, if you are not really into maintenance, just expect that when you go to sell your house, it's going to be a problem, get an inspection done first, have the work done to repair said decks.

So you can show the buyers who come, hey, we've already fixed this. Otherwise, I guarantee you you're going to get hammered when the negotiations come. All right, next question. This is another hot button topic that I think is a great thing to get into for our listeners. Jesse, do you replace windows? Do you think that is a good investment on a property? 100% of the time. Hmm. 100% of the time. Unless I'm touching a historic property, right, then that's one that I would probably keep because they're wood windows, they're older, there's historical review committees, it gets more complicated. But on anything that I'm able to

change and update to a vinyl window, I will. Energy efficiency, the look on the outside, being able to paint the vinyl windows black, gives a really nice aesthetic where you can come up with a different color scheme, make it more modern. It's just, I find that when I don't update windows, when I get to it, like I'm trying to cut corners because maybe the windows were updated 15 years ago. So there's somewhat newish. It bites me in the butt every time. Windows to me have become an expectation. If a buyer, like think about it. as if you're an agent walking a buyer, they walk in. And it's like, as a realtor, what do we say, hey, there's updated windows, right? Like, it's become part of our script. And when you're doing a

walkthrough, you're like, you know, new countertops, quartz or granite, updated windows. And if you don't do that, then really people are disappointed. And it's a big bang for your buck. I mean, you know, you could do windows for under 10 grand in a house, labor and material. And it just, it just makes a house shine. You know, new paint on the outside, old windows. It's like you did a half finished job is what it feels like. James, what about you? What's your experience with new windows? So I prefer to put in new windows, but if my comp data is not showing me, you know, if I'm using a house that doesn't have vinyl windows as my comparable cell, I'm not touching them. But what I will do is we're going to do an inspection on those windows to make sure they're not blown out. That's a huge mistake that flippers will make is they're going, oh, well, my comparable had aluminum windows, so I'm going to keep them, but then they failed to realize that four or five of them are already failed. And to replace that those window panes is oftentimes as much as a vinyl window, but then you can't do half. So always check to see what the function is if you're going to keep them. But typically, we're doing big renovations and replacing windows. And there's certain ways that we do it

to cut cost. And I think that's also important because as a flipper or a renovator, even for a burr property, you can upgrade windows and reduce costs by reducing custom sizes. So when we are looking at doing windows, we try to keep to standard stock size windows. So A, we can get them over the counter. We can install them immediately. And then B, there, you know, are not very expensive if they're not custom ordered. Your average cost of windows is going to be about 250 bucks at Home Depot on the shelf, right? Retail. If it's oversized, you're going to be paying two to three times more for that window. So ways that we found to cut costs so we can still always put them in the projects is we actually have our contractors. It's cheaper for us to have them

frame in a standard size window and then install that standard size window than to wait the four to eight weeks to get that window and that the three X costs. Let's say a custom window, is $600 and a standard is $250. That's, you know, that's a variation of 350 to 400 per window. I can pay a framer $70 an hour and have them frame that in and then put some siting on. And it's going to cost me about $100 to frame that to a standard size and not have to pay that $300 to $400 premium. And so when you are looking at doing your windows, what standard, try to stick with standard,

talk to your contractors, how much it's going to cost you to frame those things in. And then you can cut your cost down dramatically. like Jesse said, you can get a lot of bang for your buck, but you got to do it the right way. All right. And when you mentioned that windows are blown out, what you're referring to there, James, is when you have typical dual pain windows, have two panes of glass, and then a gas in between that acts as an insulate so that the cold air doesn't come in or the hot air doesn't come in. And when one of those pains or the seal around it fails, the gas escapes. And that's when you get the insulation factor of the window isn't as effective. And you'll typically see they look foggy.

Condensation will get in there. So you can tell that a window is. failed if it's got like condensation drips or it or it looks foggy when a window's in good shape it shouldn't be the case. Funny little side story here. When I was a law enforcement officer, there was a really old house in the Bay Area and a drunk girl had forgotten how to get into her own house. And so she broke the window and then tried to reach her hand in to open the door. And it was just like the kind of glass that doesn't shatter. It just turns into like a knife and she had sliced her forearm like wide open reaching in and was too drunk to realize how bad it was.

And she came wandering up to me looking like a character out of the walking dead with like blood everywhere. And I found out like I had to put the pieces together and realize what happened. And I'm now traumatized. Like I will, if it's an old window like that, freaking replace that thing because it was like a samurai sword when she reached in after it was broken. All right, we're going to take a quick break, but stick around. When we come back, James's tips for the cheapest ways to fix exterior problems and keep material costs low. Stick around. 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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When we left off, James Dainert and Jesse Rodriguez, we're in the middle of telling us about exterior changes that they make to properties that you can to. That will add the most value to the property. Let's dive back in. Now, one issue that I run into when I'm selling houses for clients is a big negotiation hurdle is dry rot or termites, like pest problems that are related to the exterior of the home.

I found that termite companies will typically charge you four to five times what a handyman might charge to go fix that same problem. Dry rot is a fungus that can get into the wood, especially when the paint isn't kept up, which let's be frank, most people are not repainting their house every four to five years. As flippers, how have you two found ways to solve that problem cost efficiently? Jesse? Well, I'm always trying to get ahead of that, right? So when we're buying a house, we know none of us are able to do home inspections. We're coming in, you know, typically all cash, hard money, and we're trying to be aggressive. So what I've seen from a lot of young investors that are new to this is they don't address it properly.

They do all the pretty stuff. Then they go to sell it with a, you know, a realtor. And then that termite report comes up at the end. And you're right. Now it's three, four, five thousand bucks. And they're bringing the handyman back to change, you know, the rafter tails or the Eads. So I get an inspection done from my termite guy that I've been working with forever that, you know, is honest. And we address it up front.

When the guys are already there and they're already going to do some framing and they're doing painting and they're doing all this stuff, it ends up being. it ends up being pennies to have them address it before all the prep's been done and all the paints have been done. And I think that that came a couple years after just making the mistake and moving too fast. But I mean, it saves easily a couple thousand bucks on every job. Just kind of, you know, seeing it in the future. James? Yeah, I agree with Jesse because, you know, your painter never tells you if it's rod at wood. They just shoot the paint right on top of rot. And you're like, why would you do this? And they're like, well, you didn't tell me to do it. And so it's about being proactive is the woods crumbling as the sprayers hitting the paint right like you can't even hold the weight

of paint they just love doing that sprit it's funny is and then nobody mentions it there's 10 other trades that go by that thing and then still don't like see a hole through that rafter tail or like maybe that was meant to be there you know i had a cabin where they did that to the deck and i had an inspection done when i was buying it and the inspector just didn't see it apparently and one of my guess was walking across the deck stepped onto the dry rot that had been covered with paint and their foot went all the way through. Thank God it wasn't like a high deck. It was like they only had to go like two feet to hit the ground beneath. But it was like literally it's like when you're a kid watching a cartoon and there's quicksand or something like you just step right into it. So now we know where

your hate of decks comes from. That's it didn't help. Yes, that's exactly right. My prejudice against decks. That definitely didn't help. Do you guys have any advice for people that are buying a property that may be in bad shape for how you address dry rot in a cost efficient way? Or do you think that they should just use the pest inspection company that found the problem? No, we don't use pest inspection companies. We don't use mold remediation companies. We don't use pest companies. But what we do is make sure that we're taking care of that issue in a professional way.

So we'd like to double check it with professionals. So a lot of times we'll have our laborers do that. They come in, cut out all the drywot. They'll replace all the sheeting, get that situation handled. And then we have a third party inspector come verify the work. Because anytime you're dealing with dry rot, mold, moisture, If you do it, if you don't hire a license, a bonded professional for that specific trade, it can make your buyers a little nervous.

And so we save substantial costs. Usually it's about 50 to 60 percent less than your hired out company. But we want to verify that and document it for that buyer because A, as flippers, we don't let the liability years down the road that we didn't do it right. And then B, for the buyer, we can explain to them exactly what we did, how it was verified, and they can feel good about writing that offer. but yeah, those big companies will kill you on your cost. You know, we don't use pest control on our crawl spaces.

We have a crawl space company coming and do it. We get the report from them. Then we bring in our guys and then we have them come certified that the work was done properly. And by doing that, you can still get it verified without paying the three to four X on your labor. Now, take that and add roof problems, dry route problems. And what happens is you easily find yourself in $10,000 to $15,000 of repairs that could have been done for 20% percent of that, 25 percent of that, which is why I tend to tell people don't skimp on your realtor. Don't think that by saving on the commission, you're somehow saving money every single time

because you'll usually spend more money when you don't get the good experience. Like we are bringing to people today on the Bigger Pockets podcast. All right. What about additional exterior upgrades or changes that can be done that will add value to the house, Jesse? You have any that you love? So I have a big defensive one. Sewer lines.

Yeah. Can you explain what the sewer lateral is and why it's a problem? Yeah. So, you know, the main house connects to a sewer lateral that goes to the city. Here in Southern California, we have a lot of big beautiful trees. Those roots are huge. And they'll be blocking it. So it never fails.

You can do everything nice to a house. And six months later, the house, it backs up. And then we come to find out that the sewer line, the sewer main ended up, our lateral, ended up having, you know, it's rotted out because it was cast iron. And there's holes everywhere. And then now it's $6,000, $8, $10, $20,000 to repair because it's a homeowner. who's getting a bid and they're coming after us saying you didn't fix this versus when I do it, my plumber does it for $2,500.

Like on a decent, you know, 50 foot run, they will go for $2,500. It is such, I mean, that's a, there's a 5x on that for me to address it. So I camera, just like you do a termite inspection, you should do a camera inspection on your sewer lateral to make sure that it's clear because you could catch it with a hydrojet, you know, which is only a few hundred bucks to clear it out. if there's loose debris in there. It's just preventative saves you so much money if you're ahead of it and just spend a couple grand and a few different inspections.

So you ask a plumber to actually run a camera line and scope that line from the house to where it connects to the city infrastructure? Exactly. And then you look at it, you see where the problem would be and they might be able to fix it cheaply, but the couple hundred bucks for the camera work is a good investment. Exactly. Great point there. All right, James, one thing that I love about you is like me, you are a frugal Freddie.

You do not like to waste money. You look at money carefully, even though you do own a huge lot and you live in an incredibly expensive area. And I don't know, but I think that you had a teeth whitening thing done because you just have too handsome in a smile for it to be natural. You still don't waste money. So what are some ways that our listeners can incorporate into their flips or the properties they're buying where they can get the most bang for their buck when it comes to upgrades?

Yeah, one thing I want to point out is you can, by saving that money, you can invest it pay you and that's how you get to a boat, right? All the, all the frugleness I've made, you know, saved away, the interest pays for it. So that's a beautiful thing. But it's about pricing your materials out. And I, you know, the lazy flipper, the lazy investor, I have to call them out right now because there is always a way to get your pricing down. It's a matter of how much you want to work for it. So a good example is recently, you know, like when we're looking at homes and exteriors, upgrading your siding design can make this impact where people fall in love from that first curb appeal, just like your landscaping. And sometimes it's

about just giving it that little extra flavor, a little bit of accent sighting. So people are like, this is cool. It's a vibe as you come in. And so when we're looking at doing buildings that need some siting repair, now we're not going to just do it if the comps don't tell us to, but if we have to fix some siting, we want to go, A, how can we make this look amazing to where they fall in love, but not below the budget? And it comes down to pricing your materials. You know, and this is something that we've done very well the last 12 months or 24 months as material cost jump every which way. You know, good examples recently we just recited a duplex in Bellevue and we had it priced out for Hardy Panel and it was really expensive and we talked to our sitters.

We're like, well, why is this so much? He's like Hardy spiked in the last 45 days. I can actually give you cedar wood on the building for less than I can Hardy. And so we got tight knot wood cedar lap throughout the whole property for 20% less. but then what we did to cut the cost down even more is we wanted to give it a vibe, right? So we took off 25% of that siting and we sourced paneling that was this really cool, ship lap, thin, engineered wood exterior siding that cost 50% less than the tight knot wood. So not only did we achieve a really cool accent wall to where the buyers are walking and they're feeling good,

but we were able to cut 20% of our siding measurement down by 50% by sourced. by sourcing this paneling. Now, when I first started looking for this paneling and some outside ideas, it was really expensive. But the more you dig, the more you look, you will find it. And so not only did we upgrade the whole vibe of the walkway as they're coming in, like they're coming in, they got this cool accent siding. We built some lighting into it for a fraction of the price. Given the ambioms, the ambioms is going to get us a better price out of the building.

It costs 20% less. So just challenge yourself. If you're going over budget, what materials can you add in to, it and how do you cut the cost, there is always a solution. All right. Last question for each of you. I'll start with you, Jesse. For people that are listening to this that are saying, I want to learn more about low-cost options. Where can I get the most bang for my buck? Do you have any advice for where they can go, where they find these things, or how you two come across these ideas? So honestly, a lot of it I get from Pinterest. I get it from Instagram. You know, there's the two parts of it, right? Like,

James is so technical and tactical, right? He was talking right there about high design. It's high value. And what I was talking about was being defensive and making sure that you're the ugly stuff that nobody's thinking about, right? Everyone that walks into a flip goes, I want the accent wall and I want the ship lap and I want the pretty kitchen and the quartz countertops. But then they forget about the roof, the termite, the sewer line and how that all of a sudden pushes a budget 10, 15, $20,000. And so when you're looking to like try to get the high bang for your buck design wise, it's Instagram. It's Pinterest. It's just doing Google searches for, you know, for, you know, trending designs.

Then when you have the trending designer, you have the look that you want, then you bring in James' like tactical side of it, like being able to say cedars cheaper than the other siding now, right? That is what someone does the research. Like I don't think it's a lazy flipper. It's just the uneducated flipper that hasn't realized yet that it's not just one material type, that there's so many versions, that there's so many hacks that you can do. You could do a, you know, an inexpensive tile and lay it in a complicated manner.

to where it makes it look nicer and you get more bang for your buck that way. Awesome. James, what about you? Where do you get some of these design ideas as well as cheap ideas for how you can improve the value of the house? It really comes down to just asking the question. Hey, Sider, you gave me this quote. This seems really expensive.

How can we get this down? And it's just a nice open conversation with your trades in generals. We don't even go source it half the time. It's going, how can we get this cost down? And let your trades and your professionals bring it. the solution because they'll work with you as long as you'll work with them. And sometimes it's about just being good enough. Like, I may have a specific floor I want, but if my flooring guy goes, hey, this looks really close and it's 30% less, are you open to that? Great point. And so just always ask

those trades, always ask your suppliers, what's on clearance, what's on sale, how can I reduce the cost? That's a great advice. That's where I learned almost everything about real estate, literally just asking the people that were helping me as an investor about what they would do. So my favorite line was, well, here's what I was thinking. What would you do if you were me? And sometimes they have nothing to say. They're just an order taker that wants you to tell them what to do. But sometimes the contractor is like, well, if you frame it that way, here's your problem. But if you framed it this way, it would be 33% as much. What? And now I just, why? And they explain to me how framing works and I get a better idea. Or the electrician explains something I didn't know. Like this was one of the ways I just learned about

house hacking and turning one house into several units was I talked to the plumbers who were like, look, if you got to run plumbing from here to there, it's really expensive. But if we can tap into this right here, what if you put the bathroom here instead of there? Brilliant, right? So just get in the habit of asking that question. Here's what I was going to do. What would you think? All right, Jesse, thanks for joining us here again and James as well. I like this Jesse James duo that we've got. This will conclude part one of our two-part series on how to increase the value of your home, a literal master class if you ask me. Thanks to both of you for joining me if you want to get the contact information for both Jesse or James.

You could do so in the show notes. Mine will be there also. And keep an eye out for episode two of how to add value to your home, the Interior Edition. Part two of this special series will launch this Thursday. 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?

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