BiggerPockets Real Estate Podcast - 899: The Renovations That’ll Instantly Increase Your Home Value (Part 2) w/James Dainard and Jessie Rodriguez

Starting point is 00:00:00 This is the Bigger Pockets podcast show 899. What's going on, everyone? This is David Green, your host of the Bigger Pockets Real Estate podcast. Joining you with part two out of a two out of two series on renovations that actually add value to your home. Earlier this week, we released part one where we talked about renovations that add value to the exterior. And today we're covering the interior with two house flipping experts, James Dainard and Jesse Rodriguez to flipping extraordinaire that are lending their expertise, knowledge, and time. This is a great episode for your average homeowner trying to sell your home for more,

Starting point is 00:00:37 as well as investors looking to add value before exiting a property. Also, if you're a house flipper, I guarantee you're going to love this show. And if you're a short-term rental operator, you're going to get tons of design ideas that will get a higher ADR on your property and more profit in your portfolio. We've got the good stuff, folks, and I'm here for it. Let's get into it. Jesse and James, welcome back to the show. Earlier this week, we covered renovations that will add value to the exterior of the home. And today we're going to be covering the interior of the home. So let's start with that. I feel like everyone is obsessed with an open layout kitchen. There should be a drinking game on HDTV where every time someone says the word open concept, you take a shot, you'd be hammered before you got to lunchtime. How much value does this open concept add? And do you have to have an open concept kitchen specifically? Jesse, what are your thoughts?

Starting point is 00:01:29 I love the open concept. It might be because I live in a 1908 house that does not have an open kitchen concept that every time I do a design, I'm like, look how great it is. I can cook and watch TV. The kids can do homework, right? When you're flipping, for me,

Starting point is 00:01:46 I flip a lot of smaller houses under 1,700 square foot houses, taking down the wall between the kitchen and the family room, all of a sudden transforms the, like, the feel of the home. You do not think you're walking into a thousand or 1,200 square foot home anymore. So for me, it's a huge value. I have to do it every time and it's cheap for under a couple grand. I can take down a wall, throw a beam up, some footings.

Starting point is 00:02:07 And I feel that everyone gets this, this feel that you get to see the kitchen, right? Because we invest the most amount of money in the kitchen. I want you to see it as soon as you walk in the door. Because I want you to know that like, hey, look how much money we put in. Look at how nice he's kitchen is. Yeah, like James's teeth. You want people to see him, right? Right. They're at the front of his face. I'm putting a white strip on right now during the, very tall. James, what's your thoughts on kitchens and the open concept? You know, going back to the comparables, we'll open it up at the, if the comparables tell us to, and I would say majority we do, but one pet peeve of mine is you don't want to

Starting point is 00:02:41 strip the character out of the house either. You know, some homes are built for formal spaces, like what Jesse said, 1906 home, you know, they have traditional spaces, you know, they have their kitchen sectioned off, they have their dining room, and you can kind of open up the flow a little bit of them, but you don't want to ruin the air of your house. Like a lot of times in our craftsmen homes, we keep that four square feel and that formal feel, and sometimes that's the way to go.

Starting point is 00:03:05 And so really look at the comparables, look at your architecture of the property, and should you open it up? And there's other ways that you can do it too and cut the cost down. Sometimes if you're doing like a, you know, let's say a cheaper flip that you're going to sell for 300 grand or 250,000,

Starting point is 00:03:20 and you don't want to spend that $2,000 to $4,000 opening that wall up by putting the beam in, you can also work around the structure. and just cut open a picture frame rather than put a whole beam up in there. And it won't look as great, but you're still getting the flow through. And so really just look at your comparables, what price point you're trying to accomplish, and then don't rip the architecture of the house. If it's supposed to be traditional, let it be what it's supposed to be.

Starting point is 00:03:44 I've done that before, too. And one of the ways, wouldn't I do the picture frame thing? If I can make it big enough, I'll actually install a wooden bar top to make like a cool feature, especially if it's like a short-term rental. That's something that I've done. I'm definitely not as skilled as you two are at this thing, but you do get more like things you can play with once you do it. Jesse, you had something you wanted to add. Yeah, David, I think it's like with what James is saying is, you need to design layout to who the buyer is, right?

Starting point is 00:04:08 When you're looking at comps, it's not just dollars. It's I'm trying to design this home. One of my rule of thumbs that I have is I design houses so that 10 out of 10 buyers love it. I'm not looking for the functional like obsolete thing. It's like I actually like if it's a 1920s craftsman home, It has a lot of natural wood and arch and crafts feel. Yes, you have to leave the walls up. You have to leave that huge chunky wood trim around the openings.

Starting point is 00:04:33 Like you're not modernizing that because if you do that, the buyer more than likely that's looking for an arch and craft style home wants that. They're actually reducing the value of what you're going to get on that house and you think you're helping it. So it's important to really know that end user concept and who you're designing and building for based on the community. All right. What about the kitchen itself?

Starting point is 00:04:51 Is this a good place to invest money? and where do you think you get the most bang for your buck in the kitchen, Jesse? You know, yes. I mean, it depends. I'd say on most of the houses I fix, I always update the kitchen cabinets, even if they were updated, let's say, 10 years ago. Unless they're natural like hardwood, then I'll look into restoring and painting. But big bang for your buck on prefab cabinets, you know, nice countertops,

Starting point is 00:05:16 you know, adding an island or a peninsula, something where, you know, you can have more prep space, functionality. with the design, making sure that the fridge and the stove and everything's close to each other in the sink. I put a lot of thought into kitchens because it feels like the heart of the home is in the kitchen. The kitchen is important to everyone in the family now. People are usually when they're upsizing houses, it's because the kitchen was smaller in the other one and they didn't have enough room and their families are growing. And I find that it's like a 4X your return. I mean, I have friends that are flippers that are very successful that don't update everything in a house.

Starting point is 00:05:51 If you guys can't tell, I'm a fix everything in the home kind of guy. I really want to give a product that's perfect all the way around. So I overspend. But I feel like I've never lost because I've overspent because I really understand who that next buyer is going to be in the value of it. So I think it's 100% of the time you update a kitchen. What about you, James? Any kitchen hacks that you like? Yeah, I mean, kitchen and primary cell houses.

Starting point is 00:06:14 That is it true. It definitely will help you get a higher price. And so we do like to emphasize the kitchen. and upgrade them on every property, but it's about how you do it and what you're trying to accomplish. You can get a lot of bang for your buck by doing small tweaks.

Starting point is 00:06:29 For example, things that we like, and I feel is a great impression on a property, is instead of buying a micro hood, we do a stainless hood. It's about the same price, and we like to run the tile all the way up the back splash. So when they see it, it's that loud feature in the kitchen,

Starting point is 00:06:45 and it's that focal point where you're locked in on it, and it doesn't really cost you much more. items that we always look at, like Jesse referenced, is you want to have the right flow in your kitchen, but can you keep your appliances and your mechanicals in the same location? It will dramatically change the cost of your kitchen. If I can keep the sink where it is, keep the dishwasher where it is,

Starting point is 00:07:06 where the range is going, so I don't have to move the gas pipe or move the electrical over. It will save me 20 to 30% on my average install of the kitchen. And if you can keep that layout, then you can reinvest that into upgrading your cabinets, your countertops, your full tile backslash, and your appliances. And there's so many cool little hacks for kitchens.

Starting point is 00:07:26 Like, you know, for example, we use a range called Bertazone. Berta Zoni sounds fancy. It's a nice range. It looks like wolf, but it costs 60% less than a wolf range. We can take the upper cabinets off of our top shelf and just put in floating shelves. That actually reduces our cabinet costs by about 20% and it gives it a flavor and a vibe. So there's so many ways that you can upgrade your kitchen and also pull it back to where people feel really good about it and you're not having to buy the same amount of materials or spend the same amount of material costs. How do floating shelves only reduce the cost by 20%? Did you mean 80%?

Starting point is 00:08:03 Well, it depends on the cabinets you're buying. Okay. You know, your average box is going to be about $200. Our shelf, you know, is going to be about $25 to $50 for a cool shelf. But then the one issue you have to get caught with is you have to tile all the way up because we like to put tile in every one of our backslashes because, again, you know, gives it that flavor and pop. And so you do spend more on tile. So there's, there's a little bit of a tradeoff there. Okay. Any issues with floating shelf from a safety perspective that we should mention here? I've never had an issue with them. People have to know that if you're putting a floating shelf,

Starting point is 00:08:31 you can't put a bunch of heavy stuff on it, right? It's for the decorative. It's, you could put some plates, but you're not overloading it. But, you know, making sure that you go into the studs, right? Yes. I can see that made a problem. Make sure the contractor really understands that concept. If not, yeah, it's going to be a house of cards on that shelf. Don't you stick tape. What are those new like hooks that like my wife, she hung up like literally a 50 pound picture on these like, they're like, you know, that you stick them on the wall and you hold them for like a second. And then they're like supposed to be really strong. Literally three months later, this thing just comes crashing out. Don't use guerrilla tape that you saw on some infomercial to hang your

Starting point is 00:09:09 yeah. Some Amazon Instagram swipe up or something. Yeah. So that that broke. Don't do that on your floating shelves. All right. We're going to take a quick break, but make sure you stick around because we're going to be getting into more of Jesse and James Bang for your buck updates. Plus, how much value a new bathroom adds to your home and what the most overlooked renovations that investors should make are. You don't want to miss this, so stay tuned. A lot of property managers think their job is answering tenant emails and coordinating repairs. That's not the job. The job of a property manager is protecting and growing your operating income and earning your trust while they do it.

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Starting point is 00:12:18 You can relax, knowing guests are taken care of and your place is in good hands. You travel, your house works. Everyone wins. If you're ready to host, but could use some help, find a co-host at Airbnb.com slash host. Okay, we've covered the open concept. We've talked about kitchen and kitchen upgrades. Great stuff here. Let's get into bathrooms. What do renovated bathrooms do for the equity a property, Jesse. Okay, just like a kitchen. It's top dollar, huge bang for your buck. You have to deck out the bathrooms. I do not do shower enclosures anymore. I tile everything, Florida ceiling, you know, in the shower or the tub. I do back splashes behind the kitchen cabinets. I do niches in every single bathroom and I change the tile that's in the niche. You know, I'll do brass

Starting point is 00:13:06 fixtures. I'll go higher end a little bit. And by higher end, I mean color. It doesn't necessarily cost that much more to go from like an oil rub bronze to a brass if you're still just using a delta or a coal or you know home depot line i don't take lvp through the whole house into the bathroom i you know put tile on the flooring i really try to like mix materials mix elements um a lot of like design look and it just goes so far because when you think about as a flipper you always have to think about the end user already said it it's i'm going to say it a thousand times and if people are putting 5% or 10% or 20% down, right? Someone can go up in price 30, 40, 50,000 above list price because if it's 20%, really, it's costing them $10,000 more out of pocket because they're

Starting point is 00:13:51 financing the difference, right? Well, they're not going to be able to do the bathroom design the way we can for that cost. I mean, I'm pushing 10% above list on every flip I do and I truly think it's because design. Like functionality and design over cost is a big thing for me because I feel like I get it back in Southern California because of premium areas and, you know, buying power. So I do it all and I do it nice every time. James? Yeah, I think the money should always be spent in the bathroom, especially your primary,

Starting point is 00:14:22 because again, people are in there a lot. And like Jesse, we like to mix up a lot of the different materials and they were always looking for those little upgrades that won't cost much, but give it that flavor. You know, you can buy a floating cabinet off, you know, an online. line store and it will cost you about the same as what it would from your cabinet company. But what that does is we can install it, gives it a little bit of different feel, and then we add this little bit of LED strip light underneath it. And now we have a floating illuminated cabinet.

Starting point is 00:14:49 It costs us maybe 50 to 100 bucks more. And it gives it that vibe. So there's so many different things that you can do in bathrooms to upgrade it. But we're always doing the flooring, different tones, whether it's a sheet vinyl, upgraded vinyl or tile. We want to add those little details like a soap niche, like what Jesse talked about, you know, by just recess. in and framing a little opening, it gives it so much flavor, that strip lighting.

Starting point is 00:15:10 And then one thing I've learned is try to work in standard sizes in your bathroom. One tip, this is a great flip tip. It will save you 35% on your shower door. If you stay inside a standard shower door size, right, which is going to be about five feet, your average shower door is going to cost you anywhere between $300 and $700. Even for a frame list, you can get at $8,900. Once you go past five foot and two inches, then all of a sudden you have a custom shower door and it's 1,500 to 2000.

Starting point is 00:15:40 And so when you're planning out your spaces, look at what standard, what works. And we actually measure our shower sizes to fit the standard sizes because it reduces those costs. If you just think a little bit ahead, you can shred your cost down the road. Look at Jesse. Dude, you are a ninja. Like, are you kidding me? I mean, like, I mean, I swear to God, you were so tactical. This is the cheapness.

Starting point is 00:16:04 You're shooting with a sniper rifle. I shoot with a shotgun. Like it's just freaking everywhere. James does not like to waste money. And that is why he is here. And that is why I love him also. James is, that's my bromance right there.

Starting point is 00:16:17 He's got his stuff down. So that's the tip, everybody, five foot two. You can date higher than that, but you don't want your shower door to be more. All right. Now,

Starting point is 00:16:27 how much value is added per bathroom and bedroom that you add? This was when I was in my bird days and I was just cranking them out. This was one of the first. things I would look for, adding bathrooms, adding bedrooms, adding square footage to small houses. As flippers, how often do you find that you can add value by increasing your bedroom or bathroom count, Jesse? It's 100% of the time. I mean, it's one of my hacks. I search for two ones that are, you know, a thousand square feet or bigger. I convert them to three twos every single time.

Starting point is 00:16:57 I go usually right to the laundry room. Laundrum is going to be off the kitchen. Plumbing is there. Convert it to the bathroom. It's the most inexpensive way because I'm not moving. plumbing everywhere. I look for older built homes that are on raised foundations so that if I do have to move plumbing, then it's easy because there's a big giant crawl space. I'm adding a bathroom for a house with plans and permits for about 18,000. And I'm getting 50,000 back on that at least, at least every single time. And then I'm taking dining rooms and I'm converting them to third bedrooms. I'm opening up the wall in the kitchen. So I'm opening up the wall in the kitchen to make it feel larger, but then I'm closing off a dining room, right? So I'm actually just exchanging

Starting point is 00:17:37 the closed up space, but getting that extra bedroom and bathroom. And because Southern California is so expensive, even though the home is small, that extra bedroom and bathroom is so needed because I just opened up my buyer pool to such a larger percentage by having that. And it is, you know, for under 25, 35,000, 35,000, I'm now pulling 75,000 or 85,000 more value. It's what allowed me to continue to flip at a high pace in this market that was highly competitive to buy houses because I was, I was forcing equity on properties. I didn't have to buy everything at 60 cents on the dollar. I could kind of squeeze it out and keep the machine running so I could keep crews in business and make some income while the big pops would land on my lap sometimes. That's great stuff.

Starting point is 00:18:22 I actually have a book coming out for bigger pockets in August of this year with this, a framework of understanding exactly what you just described so you could get out of just, well, what is it cash flow? And can I change the cabinet? to kind of think more creatively with every property that comes your way. Now, James, you're someone who obviously likes to save money. Do you prefer to add additional bathrooms if they don't have enough? Or do you just add a line of urinals and several shower stalls into the same bathroom so you don't have to add square footage? What we typically do is we take our leftover home depotts and we just put them under the cabinet so they have a backup.

Starting point is 00:18:57 Outhouse. Outhouses. Yeah. And then you throw it out. You're good to go, clean it and you're ready to go. So throwback, right? That stuff, it's retro. Yeah, retro's in.

Starting point is 00:19:05 Retro's all, I mean, wallpaper's coming back in, you know, buckets are coming back in. You know, we will add bathrooms that the data tells us to. Typically, we are, you know, we want to always try to get that primary suite in, especially if we're looking at a higher price point. But it is something that flippers and all, even Burr investors really need to take a look at because there is a time, cost and money to adding that bathroom. And sometimes, especially after interest rates, spiked, the delta isn't as much in those more affordable markets. You know, we were looking at a house recently, and it comp for $4.75 as a one bath,

Starting point is 00:19:37 and it comp for $4.99 as a two bath. So for us to spend the 10 to $15,000 the time the permits just to get the extra $25, didn't make a lot of sense because it slowed the deal down. Isn't that crazy? When you think about what actually people care about, an extra bathroom in a house is a pretty big deal. That's amazing to me that appraisers would value it so low. Yeah, and appraisers, what, they throw $10,000 on it? And if they have to come up with an analysis they don't have the, if you have an extra bathroom in the comps, don't they throw $10,000 at it. That is nuts.

Starting point is 00:20:08 I'll tell you what, when you need that bathroom, you might pay $10,000 right then to use it when there's only one bathroom in a house and you got to go. Yeah, it doesn't, there's no logical sense. They need to update how they interpret this. And really what it should be is just a percentage average for the market, right? Two homes are selling for, two bath homes are selling for this much more percentage-wise. But check your data. I would say, typically a primary bath is going to get you more.

Starting point is 00:20:32 money. And if the comps have an additional bath, do not skimp. You need to add that space in. And so just use your data. It will tell you what to do. And then when you're planning your baths out, you can cut costs, especially if you're doing a smaller, you know, more affordable flip, stay on your wet walls. So when we're planning around our bathrooms, if we're in a more affordable price point, if you stack your bathrooms, it costs you a lot less. You don't have to move your plumbing as long. So if you need to add that bathroom, look at where you can keep all the plumbing together and you can add that upgrade for a fraction of the cost. So what that means is look for other bathrooms, kitchen or laundry.

Starting point is 00:21:08 That's typically the places where you're going to have water lines already run and you can tap into it right there. Pro tip for everybody. Good, good call there, James. Jesse, any other advice that you have when it comes to putting in an extra bathroom that people should know that will save money? You know, James kind of touched on the primary. So like when I do the laundry room conversions, right, they're never connected to a bedroom.

Starting point is 00:21:27 So I'm not creating a primary bedroom that. has a primary bathroom. So a lot of times the way that I'll do it is I'll steal the hall bath. And that's touching, right, one of the bedrooms. I'll make that a full, like I'll move a wall around, connect it to the bedroom to make it into a primary bathroom off that. And then the laundry room conversion becomes that communal one for the other two bedrooms. And now I'm checking, because you know, I'm always looking to check off the boxes.

Starting point is 00:21:52 Like for me, right, it's like open kitchen concept, has a master bathroom, master bedroom or primary, has the second one, right, has outdoor space. And as I can check every one of those boxes, I go, I'm going to hit my value. And I'm going to hit tip top of that value. I've done that before too. I've taken the laundry room, turned that into a bathroom because it was easier to move the laundry somewhere else than it was to build a bathroom somewhere else. So good stuff here.

Starting point is 00:22:16 This is one of the best podcast we've done in a long time. James, you have some tips for listeners about the smartest ways to use mirrors in your renovations. You've got some clever ideas here. So tell us what you're doing in your flips that make those bathrooms really pop. You know, as you're renovating, right, it depends on the price point. Me and Jesse are in fairly expensive markets. And so a lot of times we're doing everything.

Starting point is 00:22:38 But if you're in the more affordable markets, which I play in too, I don't care what the price point is. I just want to make some money. You can do little things that will make huge impacts. Like upgrading your mirrors with like a round mirror or a backlit mirror, you can source that stuff online now for so cheap that will give it some flavor. to where that buyer really just jumps at it without having to spend a lot of money. So when you're up there in your bathrooms, if you don't have the budget, look at mirrors. What can you make it feel cool? Paint it an accent wall behind your vanity.

Starting point is 00:23:07 There's little touches that you can do that will go a long way to where you can spend less than $500 and make it feel a lot more luxurious. So look at the mirrors, look at the paint. Look at your toilet paper holders. I mean, if you spend five bucks more, it might be a little bit cooler. And, you know, so look at for those cheap and inexpensive upgrades. because you don't always have to rip it all apart. You can just add some flavor to it.

Starting point is 00:23:28 James, that goes hand in hand with staging. And Dave, I don't mean to move it, but like the mirror is like it's a staging type thing. And so many times, I'll go spend $150,000 on a remodel and then pay a stageer at $3,500. And every comment is, oh, my God, I love the staging. I love the couch. And I'm like, how about the tile? Tell me that you like my tile, man. And you realize the value that like the mirror, the couch, the visual.

Starting point is 00:23:55 that comes beyond. I mean, you can do the most beautiful tile and kitchen job and someone walks into that house and it feels bare. They can't visualize where their TV is supposed to go. I mean, it's amazing. Our job here is flippers is to really paint the picture and it doesn't stop with just the design or the functionality. You have to go that extra mile. So I love that idea of the mirror. You're right. I sympathize with you, Jesse. I get to a point where I hit a new record on bench press and have a bunch of muscle and all people see is the scraggly beard and that's all that they comment on you're like come on all this work was done and that's all you notice all right what's the record i got to know what the record is now what's the record you want me to sit here live on a on a podcast what's the press record i got to know

Starting point is 00:24:38 you're doing good here uh i hit three plates i think that's 350 pounds probably not a ton of weight for someone who's really good at lifting weights but i that was a lot for me that's impressive yes thank you let's talk about that who cares about houses let's talk about ds David Green's workout routine. All right, talking about shocking statistics, let's get into electrical work. Man, this can really screw up a deal. We'll get into that right after the break,

Starting point is 00:25:05 plus when you should replace those pesky water heaters and the most worthwhile updates that most investors ignore. This is stuff you don't want to miss. It's going to save you money, so make sure you stick around for more. Did you know your house gets bored when you leave? I can't actually prove that, but it probably misses out on the action, the footsteps, the late-night fridge raids.

Starting point is 00:25:27 Yeah, when you're gone, your place is basically on unpaid leave. It's sitting there in the dark thinking, I could be contributing right now. Your side room wants a side hustle. Even your Wi-Fi is like, we could be networking. You're on vacation, spending money like it's a sport while your staircase at home is fully capable of sending your income upwards. Here's the twist. You can go on a trip and actually.

Starting point is 00:25:52 earn money. Airbnb makes that possible with the co-host network. If you're away for a while or have a secondary property, you can hire a vetted local co-host with real hosting experience to handle it all. A co-host can handle guest communications, it can manage reservations and keep things running smoothly so you don't have to check your phone between beach days. That means less stress and more time enjoying your trip. You can relax, knowing guests are taken care of and your place is in good hands. You travel, your house works. Everyone wins. If you're ready to host but could use some help, find a co-host at Airbnb.com slash host. Tax season reminder for all the real estate investors listening.

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Starting point is 00:27:52 With Avail, rental listings can be published to 24 top rental sites with one click, completely free. That includes places renters are already searching, like Realtor.com, Apartments.com, Redfin, and more. No copying and pasting. No juggling multiple platforms, just one listing that shows up everywhere. If getting rentals organized and filled fast is on the list this year, start with Avail. Sign up for free at Avail.co slash Bigger Pockets. That's AVAI-I-L-C-O-Bigger Pockets. Welcome back. James Dainert and Jesse Rodriguez are here and they're in the middle of breaking down the interior changes that you can make to your property that will add the most value. Let's jump back in. Jesse, what do people need to keep on the lookout for with electrical work? And is it typically going to get you an ROI on the upgrades? So a lot of investors seem to like only want to do the pretty and that they don't touch the mechanical and the electrical because you can't see it. But when you are going to the inspection on the flip side of it, when it's listed, it will bite you in the butt every single time. So if I can get away with not updating a panel, then I'll try not to, but I always add recess lights. It's kind of something now that I feel

Starting point is 00:29:01 isn't very expensive. You know, it's costing $100 bucks a recess light. So it's, you know, $2,000 or so and everyone loves it. I mean, it's, it's like adding windows. People are like, oh, there's recess lights. Oh, there's new windows. So I've gotten to the point where it's just standard every single time for me. If I have to get behind the walls, you know, because, you know, maybe it's knob and tube electrical wiring and I need to update it. But if there's Romex there, I try, it doesn't have to be updated again. You know, when we get into adding HVAC systems and maybe the panel doesn't have enough juice, then I need to update to a 200 amp panel.

Starting point is 00:29:35 I'll do it. But I will say the electrical, it's always recessed, but I don't necessarily rewire or update a panel unless it's necessary because that becomes into a big ticket item. The second part that's very, very cheap, but gives you a big bang is I hate when I walk into a flip. The home's painted and it's beautiful and they put on the same old outlets, right? Like the round ones instead of switching it to like the square outlet covers. You know, they're still like the old light switch instead of like the newer square toggle one. That is the finishing touch that's needed to show that you modernized in my opinion. So this would be like when somebody gets a brand new custom fitted three piece suit

Starting point is 00:30:13 and then they wear it with white tube socks. Yes. That's a good analogy. Thank you for that. Yeah, I've never seen a buyer come out of a house and say, I loved it, but what about the electrical? Or, you know, I was really impressed with that upgraded panel over there. I think that most buyers just expect that the stuff is going to be safe. So, James, how do you balance when an electrical upgrade is needed or electrical work needs to be done versus when the money is better put elsewhere? Yeah, it always comes down to layout in safety on the electrical that we're doing. A lot of times, if you're adding bathrooms, you're manipulating layouts, you're going to have to plan to rewire a lot of this house anyways because you're moving so much condoing around. But we always hit those safety items.

Starting point is 00:30:51 You know, if we have a Zinsko panel, right, that is a panel that's known nationwide, they catch on fire. Stop it. Stop. Don't say the Z word, James. Don't say the Z word. Home inspector's favorite thing. They're like, Zensko, you got to replace your house burning down, even though the house never

Starting point is 00:31:07 burned down in 60 years. That must be like day one of home inspector school is like, let me show you how to justify your $400 fee, call out the Zinsko panel. So we hit those safety items. items. But, you know, and those are the things that have to be done to keep your sale together to maybe take it to do code. And sometimes you just have to do it. But as a flipper, too, if we are doing more of a lipstick and let's say we have 100 amp panels, so it's a smaller panel that what's built today. And we're going for a more affordable price point. We actually bullet point out when we list the

Starting point is 00:31:39 property what we did to the electrical and what is still existing because we don't want the buyer, because buyers assume that flippers do everything all the time. And that's just not true. We're doing a scope of work for a price point. And so if you are going to scale back on some of those, you know, safety or, you know, modernization of mechanicals, just document it so that buyer knows what they're getting into. It will save you an inspection nightmare down the road. But typically we're rewiring most things.

Starting point is 00:32:03 And then there's little things that we like to do, like the electrical trim that can really go a long ways, right? Your dining room chandelier, your bathroom lighting, little things that you can add, you know, you might spend 50 bucks more or you source it out and it'll give it that flavor. and pop because people's visual eyes go right to those spaces. And so you can get a premium. And then recently, as we've been getting into our higher end flips, we do a lot more ambiance lighting. Because again, the more a buyer has a vibe on the house, the more they'll pay. So we like to do a little bit of uplighting on the outside, the walkways. So as they're coming

Starting point is 00:32:37 through to show the house, they have a vibe. We like to add in little decorative lights. Like, can we put an uplight in a hallway and just light up a wall? And it costs us maybe a hundred bucks. But people feel good soon as they walk in that front door. And so depending on your scope of working your size, just don't forget to add little extra features because again, just like the staging, it makes people fall in love and they will pay you better. All right. Now, speaking about socks and underwear of housing, let's talk about water heaters and furnaces, not the sexiest stuff to get for Christmas, but yet they still exist and have to be dealt with. Jesse, what is your take on when you should replace a water heater or a furnace? Goes back to the home inspection. I know that

Starting point is 00:33:17 if that water heater's been in there 20 years, the home inspector is going to call it out. They're going to redline it. They're going to make it seem like it's the worst thing in the world. And I'm going to see a change order request from the buyer that says, give me a $2,000 credit for it or change it. So I love when I'm selling a house. I have like my termite completion, maybe a roof cert. Like I'm premeditated.

Starting point is 00:33:40 You're going to want to do these inspections. I've already done it. So I've got my HVAC guy that does like, it created kind of like a roof cert for HVAC. that's, you know, he's not putting a year on it, but it's like, we did these steps, doesn't put the price on it. So it's not the invoice. And it just kind of shows that I'm like checking off all the boxes of I didn't just make it look pretty. I'm also servicing mechanicals. All right.

Starting point is 00:34:03 James, teeters, furnaces, the non-sexy stuff that goes with the flip, what should take? I mean, most buyers come into our house. They're like, look at that furnace. That is something else. Yeah, those are just the things that you have to do. in these properties. And what Jesse touched on is what we like to do. If it's past 10 years old, we start looking at, you know, if it's right on that cusp,

Starting point is 00:34:26 because your average lifespan for water tanks about 10 years, same with a furnace, as long as it's been taken care of. If it's right on that threshold, depending on what we're selling, we're going to have it serviced, we're going to have it inspected, and that's a negotiated item for that buyer. If it is way past it, then we're going to replace it. Or if we're taking a property all the way down to studs and upgrading every mechanical, it looks weird if we don't touch the furnace. Yeah.

Starting point is 00:34:48 And so, you know, just know your scope of work and then see what you can salvage. That is another home inspector they love. The furnace is nine years old, and then it's always that line that gets us all. It is coming to its end of its expected life. Useful life. It's like, well, who says if it's working, it's great. Like, it works, right? And so just service it, treat it, make sure that you clean it up, and then that's a negotiating item down the road.

Starting point is 00:35:15 But if we're hitting that around that 10-year mark, we budget for a new furnace every time because we don't want to get clipped on the backside of that sale because we know it's in no man's land. We don't know whether we're going to have to do it or not. And so as long as you count for it in your budget, then it's a negotiated factor later and it could be upside to your profit later down the road, too. And quick tip for all of our listeners out there. If you find yourself in a jam where you don't have it in the budget to replace something like HVAC, water heater, furnace, one of those things. but the buyers are making a stink about it. One way that I have wiggled around this is we include a home warranty in the deal, which is $400 to $500, and we don't replace the actual unit.

Starting point is 00:35:54 And then if the unit breaks two years down the road or whatever, as long as the buyer renew that home warranty, it will often be replaced that way. And so it's going to cause a little bit of money, but not the full $3,500 that it might be. All right, last question for each of you. What are some overlooked interior renovations that add, value to a home that flippers and real estate investors may not be thinking about. Jesse?

Starting point is 00:36:18 Let's go James first. Jesse gave all of his best stuff earlier when he's like, we got light sockets, yeah, electrical outlets. James, let's start with you this time. You know, I think one of the more overlooked things from flippers is we do the same thing, right? We're going, okay, here's this comparable property, has all the shiny stuff to it. It's got cabinets, it's got flooring. It's got all the new appliances and then we're just focused on what we need to do in the house as far as updating the materials. Where we've seen some big impact is, again, we go back to that flow and vibe. We've really learned that over 18 years. Like that makes a big impact whether your house is getting picked first or last. And upgrading things like natural light, expanding windows,

Starting point is 00:37:01 maybe adding one extra window into a space can really, really change the vibe of your whole house. and by adding a $400 window and one wall can make a big impact where that buyer jumps on it. Or if you have a below grade property where it feels like a dungeon and you spend $1,500 putting in an egress window and all of a sudden it feels like a great space, that's where we've seen a lot of those hidden value increases. It's more about the vibe than the tinsel. But if you want to go for the tinsel, things that are great are wallpaper, accent walls. Those things can break up the spaces. it doesn't cost much. You know, those little, little, you don't want your house feeling stale and sterile.

Starting point is 00:37:43 So anytime you can add just a little bit of flavor, wallpaper, accent walls, maybe just a floating shelf, one corner light, it will go a long way because you want it to stand apart. And so just look at how you break up your spaces and then what is that natural light feel. People really do underestimate what having the outside feel inside your house will do to a buyer's perception. Yeah, that's a great point. I'm actually working on a lot of that right now in my own portfolio, like short-term rentals. Some of these cheap things that we're talking about here that can get better pictures taken, which will drive more people to book it.

Starting point is 00:38:14 Or if you're selling a house as a flipper, you guys both know those pictures are pretty much everything when it comes to getting people in the door because they can't fall in love with your house if they don't see it. Jesse, anything you want to add to that? Yeah, I think one of the things, you know, as flippers, we get used to almost the houses becoming a little sterile, white walls, recess lights. And it just kind of becomes kind of hospitalish a little bit because we're wanting to give someone a clean palette so that they can do their own stuff.

Starting point is 00:38:39 So when James is talking about accent walls and wallpaper and that coming back in, 100%, like not being scared to bring a little flare because a lot of people can't think outside the box, so you're helping them. The second part is the fixtures, you know, adding a cool light fixture in the dining room that's beyond maybe just the basic Home Depot one, going on Amazon. If you go on Amazon now, I mean, the finishes that you can get with regards to light fixtures, wall sconces, chandeliers, pendant lights above an island are really cool now. And it brings in elements of black or gold and really can tie in a design.

Starting point is 00:39:13 And it changes your kind of your eyesight, right? You're not just seeing like smooth ceiling, just recess lights. It's like smooth ceiling, cool chandelier, staging, pendant light, right, wall sconce, open shelving, all those little elements that don't cost a ton, but really make the space feel lived in. And I think flippers need to remember that. Like it's like make it feel warm, make it feel kind of poppy a little bit. And it's you get the emotional high. Like people, it's not just about clean and new.

Starting point is 00:39:40 It's like get people in their falling in love. I think everybody needs to remember you want to flip a house that 10 out of 10 people want to buy. That's how you can drive prices up. That's how you can get bidding wars, right? Gentlemen, this has been some fantastic information, great ideas, tactical advice, things that are literally going to make our audience money in real estate. So I appreciate both of you being here. If you guys would like to follow Jesse and James, you can do so by finding their information in the show notes.

Starting point is 00:40:07 Mine will be there as well. And please make sure you're following the Bigger Pockets podcast. We can keep bringing you more information like this. This will conclude part two of our How to Add Value to Your Home Interior Edition. So thanks both of you for being here. I really appreciate the Jesse James combo. Hopefully we can do this again. Thank you all for listening to the Bigger Pockets Real Estate podcast.

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BiggerPockets Real Estate Podcast - 899: The Renovations That’ll Instantly Increase Your Home Value (Part 2) w/James Dainard and Jessie Rodriguez

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