The Renovations That’ll Instantly Increase Your Home Value (Part 2)

David:
This is the BiggerPockets Podcast, show 899. What’s going on, everyone? This is David Greene, your host of the BiggerPockets 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.
Today, we’re covering the interior with two house flipping experts, James Dainard and Jessie Rodriguez, two flipping extraordinaires that are lending their expertise, knowledge and time. This is a great episode for your average homeowner trying to sell your home for more, 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. If you’re a short-term rental operator, you are 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. Jessie 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 HGTV 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? Do you have to have an open-concept kitchen specifically? Jessie, what are your thoughts?

Jessie:
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 and the kids can do homework.” When you’re flipping, for me 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 feel of the home.
You do not think you’re walking into 1,000 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, and I feel that everyone gets this feel that you get to see the kitchen. 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, “Hey, look how much money we put in. Look at how nice this kitchen is.”

David:
Yeah. Like James’s teeth, you want people to see them. That’s why they’re at the front of his face.

Jessie:
I’m putting a Whitestrip on right now during this call.

David:
James, what’s your thoughts on kitchens and the open concept?

James:
Going back to the comparables, we’ll open it up 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 strip the character out of the house either. Some homes are built for formal spaces. Like what Jessie said, 1906 home, they have traditional spaces. They have their kitchen sectioned off, they have their dining room.
You can open up the flow a little bit of them, but you don’t want to ruin the air of your house. A lot of times in our Craftsman homes, we keep that Foursquare feel and that formal feel, and sometimes that’s the way to go. Really look at the comparables, look at your architecture of the property and should you open it up. There’s other ways that you can do it too and cut the cost down.
Sometimes if you’re doing, let’s say, a cheaper flip that you’re going to sell for 300 grand or $250,000, and you don’t want to spend that $2,000 to $4,000 opening that wall up by putting a 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. It won’t look as great, but you’re still getting the flow through.
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.

David:
I’ve done that before too. One of the ways when I do the picture frame thing, if I can make it big enough, I’ll actually install a wooden bar top to make a cool feature.
Especially if it’s 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 things you can play with once you do it. Jessie, you had something you wanted to add?

Jessie:
Yeah. David, I think it’s like what James is saying is you need to design layout to who the buyer is. 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, obsolete thing. Actually, if it’s a 1920s Craftsman home, it has a lot of natural wood, an arts-and-crafts feel.
Yes. You have to leave the walls up, you have to leave that huge, chunky wood trim around the openings. You’re not modernizing that, because if you do that, the buyer more than likely that’s looking for an Arts and Crafts-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.
It’s important to really know that end-user concept and who you’re designing and building for based on the community.

David:
All right. What about the kitchen itself? Is this a good place to invest money and where do you think you get the most bang for your buck in the kitchen, Jessie?

Jessie:
Yes, 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 hard wood, and I’ll look into restoring and painting, but big bang for your buck on prefab cabinets, nice countertops. Adding an island or a peninsula, something where 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 and 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.
I find that it’s like a 4X your return. I have friends that are flippers that are very successful that don’t update everything in a house. If you guys can’t tell, I’m a fix everything in a 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 and the value of it, so I think it’s 100% of the time you update a kitchen.

David:
What about you, James? Any kitchen hacks that you like?

James:
Yeah. Kitchen in primary sell houses, that is true, it definitely will help you get a higher price. 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. For example, things that we like and I feel is a great impression on a property, is instead of buying a microhood, we do a stainless hood.
It’s about the same price. We like to run the tile all the way up the backsplash, so when they see it, it’s that loud feature in the kitchen. 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 Jessie 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, 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. If you can keep that layout, then you can reinvest that into upgrading your cabinets, your countertops, your full tile backsplash and your appliances.
There’s so many cool, little hacks for kitchens, like for example, we use a range called Bertazzoni. Bertazzoni 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.
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.

David:
How do floating shelves only reduce the cost by 20%? Did you mean 80%?

James:
Well, it depends on the cabinets you’re buying.

David:
Okay.

James:
Your average box is going to be about $200. A shelf is going to be about 25 to 50 bucks for a cool shelf, but then the one issue you get caught with is you have to tile all the way up.
Because we like to put tile in every one of our backsplashes because it gives it that flavor and pop. You do spend more on tile, so there’s a little bit of a trade-off there.

David:
Okay. Any issues with floating shelves from a safety perspective that we should mention here?

Jessie:
I’ve never had an issue with them. People have to know that if you’re putting a floating shelf, you can’t put a bunch of heavy stuff on it.
It’s for the decorative. You could put some plates, but you’re not overloading it, but making sure that you go into the studs.

David:
Yes. I can see that being a problem.

Jessie:
Make sure the contractor really understands that concept. If not, yeah, it’s going to be a house of cards on that shelf.

James:
Don’t use sticky tape.

Jessie:
What are those new hooks? My wife, she hung up literally a 50-pound picture on these. You stick them on the wall and you hold them for like a second.
Then they’re supposed to be really strong. Literally, three months later, this thing just comes crashing down.

David:
Don’t use Gorilla Tape that you saw on some infomercial to hang your, yeah.

Jessie:
Some Amazon, Instagram swipe up or something. Yeah, so that broke. Don’t do that on your floating shelves.

David:
All right. We’re going to take a quick break, but make sure you stick around because we are going to be getting into more of Jessie and James’s 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.
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 in a property, Jessie?

Jessie:
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 floor to ceiling. In the shower or the tub, I do backsplashes behind the kitchen cabinets. I do niches in every single bathroom and I change the tile that’s in the niche. I’ll do brass 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 an oil rubbed bronze to a brass, if you’re still just using a Delta or a KOHLER, Home Depot line. I don’t take LVP through the whole house into the bathroom. I put tile on the flooring. I really try to mix materials, mix elements, a lot of design look. It just goes so far because when you think about, as a flipper, you always have to think about the end user.
I already said it, I’m going to say it 1,000 times. If people are putting 5% or 10% or 20% down, someone can go up in price $30,000, $40,000, $50,000 above list price. Because if it’s 20%, really it’s costing them $10,000 more out of pocket because they’re financing the difference. Well, they’re not going to be able to do the bathroom design the way we can for that cost.
I’m pushing 10% above list on every flip I do, and I truly think it’s because design. 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 buying power. I do it all and I do it nice every time.

David:
James?

James:
Yeah. I think the money should always be spent in the bathroom, especially your primary, because again, people are in there a lot. Like Jessie, we like to mix up a lot of the different materials and we’re always looking for those little upgrades that won’t cost much, but give it that flavor. You can buy a floating cabinet off an online store, and it’ll 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. Then we can add this little bit of LED strip light underneath it, and now we have a floating illuminated cabinet. It costs us maybe 50 to 100 bucks more and it gives it that vibe. 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 Jessie talked about. By just recessing it and framing a little opening, it gives it so much flavor, that strip lighting. 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, which is going to be about five feet.
Your average shower door is going to cost you anywhere between 300 bucks and $700. Even for a frameless, you can get at $800, $900. Once you go past 5′ 2″, then all of a sudden, you have a custom shower door and it’s $1,500 to $2,000. When you’re planning out your spaces, look at what’s standard, what works. 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.

David:
Look at Jessie.

Jessie:
Dude, you are a ninja. Are you kidding me?

David:
Told you.

Jessie:
I swear to God, you are so tactical.

David:
This is the cheapness.

Jessie:
You’re shooting with a sniper rifle, I shoot with a shotgun. It’s just freaking everywhere.

David:
James does not like to waste money, and that is why he is here and that is why I love him also. James, that’s my bromance right there. He’s got his stuff down. That’s the tip, everybody, 5′ 2″. You can date higher than that, but you don’t want your shower door to be more.
All right. Now how much value is added per bathroom and bedroom that you add? This was when I was in my BRRR 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, Jessie?

Jessie:
It’s 100% of the time. It’s one of my hacks. I search for 2/1s that are 1,000 square feet or bigger. I convert them to 3/2s every single time. I go usually right to the laundry room. Laundry room’s 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 every single time. 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. I’m actually just exchanging the closed-up space, but getting that extra bedroom and bathroom. 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. It is for under 25,000, 35,000 bucks, I’m now pulling $75,000 or $85,000 more in 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 forcing equity on properties. I didn’t have to buy everything at 60 cents on the dollar.

David:
Yeah.

Jessie:
I could 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.

David:
That’s great stuff. I actually have a book coming out for BiggerPockets in August of this year, with a framework of understanding exactly what you just described, so you could get out of just, “Well, what is the cashflow and can I change the cabinets?”
Just 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?

James:
Well, what we typically do is we take our leftover Home Depot buckets, and we just put them under the cabinet so they have a backup.

Jessie:
Outhouse.

James:
Outhouses, yeah. Then you throw it out, you’re good to go clean it and you’re ready to go.

David:
It’s a throwback, right? That stuff, it’s retro.

James:
Yeah, retro’s in. Wallpaper’s coming back in, buckets are coming back in. We will add bathrooms if the data tells us to. Typically, we are, 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, even BRRRR investors really need to take a look at, because there is a time, cost and money to adding that bathroom.
Sometimes, especially after interest rates spike, the delta isn’t as much in those more affordable markets. We were looking at a house recently and it comped for $475,000 as a one bath and it comped for $499,000 as a two bath. So for us to spend the $10,000 to $15,000, the time, the permits just to get the extra $25,000 didn’t make a lot of sense because it slowed the deal down.

David:
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.

James:
Yeah. Appraisers, they throw 10 grand on it. If they have to had come up with an analysis they don’t have, if you have an extra bathroom and the comps don’t, they throw $10,000 at it. That is nuts.

David:
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.

James:
Yeah, 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. Two-bath homes are selling for this much more percentage wise, but check your data. I would say typically a primary bath’s going to get you more money, and if the comps have an additional bath, do not skimp. You need to add that space in. Just use your data, it will tell you what to do.
Then when you’re planning your bath out, you can cut costs. Especially if you’re doing a smaller, more affordable flip, stay on your wet walls. 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. 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.

David:
What that means is look for other bathrooms, kitchen or laundry. 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 call there, James. Jessie, any other advice that you have when it comes to putting in an extra bathroom that people should know that will save money?

Jessie:
James touched on the primary. When I do the laundry room conversions, they’re never connected to a bedroom, so I’m not creating a primary bedroom that has a primary bathroom. A lot of times the way that I’ll do it is I’ll steal the hall bath and that’s touching one of the bedrooms. I’ll make that a full. I’ll move the wall around, connect it to the bedroom to make it into a primary bathroom off that.
Then the laundry room conversion becomes that communal one for the other two bedrooms, and now I’m checking because I’m always looking to check off the boxes. For me, it’s like open-kitchen concept, has a master bathroom, master bedroom or primary, has the second one, has outdoor space. 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.”

David:
Yep, 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.
This is one of the best podcasts 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.

James:
As you’re renovating, it depends on the price point. Me and Jessie are in fairly expensive markets, and so a lot of times we’re doing everything. 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 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. When you’re upgrading your bathrooms, if you don’t have the budget, look at mirrors. What can you make it feel cool? Paint an accent wall behind your vanity. 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.
Look at the mirrors, look at the paint, look at your toilet paper holders. If you spent five bucks more, it might be a little bit cooler. Look for those cheap, inexpensive upgrades because you don’t always have to rip it all apart. You can just add some flavor to it.

Jessie:
James, that goes hand in hand with staging. Dave, I don’t mean to move it, but the mirror, it’s a staging type thing. So many times, I’ll go spend $150,000 on a remodel and then pay a stager 3,500 bucks, and every comment is, “Oh my God, I love the staging. I love the couch.” I’m like, “How about the tile? Tell me that you like my tile, man.”
You realize the value that the mirror, the couch, the visualization that comes beyond, 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. It’s amazing. Our job here as 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. I love that idea of the mirror, you’re right.

David:
I sympathize with you, Jessie. 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.”

Jessie:
All right. What’s the record? I got to know what the record is now. What’s the record?

David:
You want me to say it here live on a podcast?

Jessie:
Yeah, what’s the press record? I got to know.

David:
You’re doing good here. I hit three plates. I think that’s 315 pounds.
Probably not a ton of weight for someone who’s really good at lifting weights, but that was a lot for me.

James:
That’s impressive.

David:
Yes, thank you. Let’s talk about that. Who cares about houses? Let’s talk about David Greene’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. 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 that’s going to save you money, so make sure you stick around for more. Welcome back, James Dainard and Jessie 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. Jessie, 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?

Jessie:
A lot of investors seem to only want to do the pretty, and then 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. If I can get away with not updating a panel, then I’ll try not to, but I always add recess lights.
It’s something now that I feel isn’t very expensive. It’s costing 100 bucks a recess light, so it’s $2,000 or so and everyone loves it. It’s like adding windows, people are like, “Oh, there’s recess lights. Oh, there’s new windows.” I’ve gotten to the point where it’s just standard every single time for me. If I have to get behind the wall, because maybe it’s knob-and-tube electrical wiring and I need to update it.
But if there’s Romex there, it doesn’t have to be updated again. When we get into adding HVAC systems and maybe the panel doesn’t have enough juice and I need to update to a 200-amp panel, 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 like the round ones, instead of switching it to the square outlet covers. They still like the old light switch instead of the newer, square toggle one. That is the finishing touch that’s needed to show that you modernized, in my opinion.

David:
This would be like when somebody gets a brand-new, custom-fitted three-piece suit and then they wear it with white tube socks.

Jessie:
Yes, that’s a good analogy.

David:
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 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. 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?

James:
Yeah. It always comes down to layout and 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 conduit around, but we always hit those safety items. If we have a Zinsco panel, that is a panel that’s known nationwide, they catch on fire.

Jessie:
Stop it. Stop, don’t say the Z word, James.

James:
The Z word.

Jessie:
Don’t say the Z word.

James:
The home inspector’s favorite thing, they’re like, “Zinsco, you got to replace. Your house is burning down.” Even though the house never burned down in 60 years.

Jessie:
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 Zinsco guy.”

James:
We hit those safety items, 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 than what’s built today and we’re going for a more affordable price point, we actually bullet point out when we list the property, what we did to the electrical and what is still existing.
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. If you are going to scale back on some of those safety or modernization of mechanicals, just document it so that buyer knows what they’re getting into. It’ll save you an inspection nightmare down the road, but typically we’re rewiring most things. Then there’s little things that we like to do, like the electrical trim, that can really go a long ways.
Your dining room chandelier, your bathroom lighting. Little things that you can add, 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. 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.
We like to do a little bit of uplighting on the outside, the walkways, so as they’re coming through to show the house, they have a vibe. We like to add in little decorative lights. Can we put an uplight in a hallway and just light up a wall? It costs us maybe 100 bucks, but people feel good soon as they walk in that front door. Depending on your scope of work and 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.

David:
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. Jessie, what is your take on when you should replace a water heater or a furnace?

Jessie:
Goes back to the home inspection. I know that if that water heater’s been in there 20 years, the home inspector’s 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. 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.”
I love when I’m selling a house, I have my termite completion, maybe a roof cert. I’ve premeditated, “You’re going to want to do these inspections.” I’ve already done it. I’ve got my HVAC guy that created like a roof cert for HVAC. 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.
It just shows that I’m checking off all the boxes of, “I didn’t just make it look pretty. I’m also servicing mechanicals.”

David:
All right. James, heaters, furnaces, the non-sexy stuff that goes with the flip. What’s your take?

James:
Most buyers come into our house and they’re like, “Look at that furnace, that is something else.” Those are just the things that you have to do in these properties. What Jessie touched on is what we like to do. If it’s past 10 years old, we start looking at if it’s right on that cusp. Because your average lifespan for water tanks is 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 then 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.

David:
Yeah, yeah.

James:
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.

David:
Useful life, yes.

James:
Useful life. It’s like, “Well, if it’s working, it’s great.” It works, and so just service it, treat it, make sure that you clean it up, and then that’s a negotiating item down the road. 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. As long as you count for it in your budget, then it’s a negotiating factor later, and it could be upside to your profit later down the road too.

David:
Quick tip for all of our listeners out there, if you find yourself in a jam or 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.
Then if the unit breaks two years down the road or whatever, as long as the buyer renewed that home warranty, it will often be replaced that way. It’s going to cost 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, Jessie?

Jessie:
Let’s go James first.

David:
Jessie gave all of his best stuff earlier when he is like, “We got light sockets. Yeah, electrical outlets.” James, let’s start with you this time.

James:
I think one of the more overlooked things from flippers is we do the same thing. 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. 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. That makes a big impact, whether your house is getting picked first or last. Upgrading things like natural light, expanding windows, maybe adding one extra window into a space, can really, really change the vibe of your whole house. 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 don’t want your house feeling stale and sterile. 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. 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.

David:
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 they can get better pictures taken, which will drive more people to book it.
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. Jessie, anything you want to add to that?

Jessie:
Yeah. I think one of the things as flippers, we get used to almost the house is becoming a little sterile, white walls, recess lights. It just becomes hospital-ish a little bit because we’re wanting to give someone a clean palette so that they can do their own stuff. 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. 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, the finishes that you can get with regards to light fixtures, wall sconces, chandeliers, pendant lights above an island are really cool now. It brings in elements of black or gold, and really can tie in a design and it changes your eyesight.
You’re not just seeing smooth ceiling, just recess lights. It’s like smooth ceiling, cool chandelier, staging, pendant light, 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. It’s like make it feel warm, make it feel poppy a little bit, and you get the emotional high. It’s not just about clean and new.
It’s like get people in there 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?

David:
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 Jessie and James, you can do so by finding their information in the show notes. Mine will be there as well.
Please make sure you’re following the BiggerPockets Podcast, so 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. Thanks both of you for being here. I really appreciate the Jessie, James combo. Hopefully, we can do this again.