18. IMPROVING YOUR HOME FOR THE BEST RETURN ON VALUE

SUMMARY KEYWORDS

flooring, people, house, spent, nice, floor, home, carpet, adrian, square foot, living room, cheaper, designer, cost, wood, refinish, money, audience, big, record

SPEAKERS

Rob, Intro, Adrian

Intro  00:02

Welcome to the get rich, slow podcast. This is the stuff we and our expert guests wish we knew a decade ago to get the most out of our financial life will provide you with insight into wealth building activities and practices that can expand your net worth exponentially. get insight from top professionals who will reveal how to build wealth the long way, work smarter, not harder and identify your financial blind spots. With over 25 plus years of experience as licensed real estate professionals and a long track record of winning for their clients. Robin Adrian will teach you what it takes to be an everyday real estate millionaire.

Adrian  00:43

Hello, future millionaires and welcome back to the get rich slow podcast. I am your co host Adrian Shermer joined with my fellow co host Robert Delavan. Good morning, Rob.

Rob  00:52

Good morning, Adrian. How are you doing today?

Adrian  00:55

Pretty good, man. Pretty good. I’m glad this heatwave is over. We hit record temps over here, where we’re recording in the Portland Oregon area. Our previous record was was a 108 I want to ever ever, ever want to wait. Right 115 116 We had depending on where the temperature was taken. Yeah. So insane record heats. And now it’s a I’m so glad to see clouds. I never thought I’d say that. But I’m really stoked.

Rob  01:22

It’s it’s a balmy, balmy 187 yesterday. Yeah,

Adrian  01:26

yeah, it’s real chilly day I had had to put my sweater on. There you go. So today, we’re going to chew into a pretty interesting subject. And it’s all about, you know, doing improvements and modifying your home. And this is something that we’re gonna have a few more episodes with, as well, we’ve got interior designer who’s already slotted to come in with us. But we’re gonna start kind of with a preface here. And this is going to be one where it’s great if you can take a look at the video, but we’re going to do a nice audio description as well. But don’t forget, we’ve got a YouTube, we do record ourselves as we record this. So there’s video that goes along. And then occasionally, like in this episode, there’s going to be some pictures, that we’ll be able to host some of these up on the website. But looking at these images will help kind of bring the story together. But Robert, you had the lead us on.

Rob  02:11

So the idea today is you don’t make expensive mistakes, right. And it all comes back to this concept of, hey, I wish I would have known that before I started, you know, the things that the whole idea of this podcast that get rich, slow podcast is the things we wish they taught us in school the things they wish the professionals, you know, could convey without us having to live and learn which live and learn is kind of expensive. So a little pricing. Yeah, just a little bit. So the scenario, let me paint a picture for the audience is I just recently listed a house for sale. Super cool guy, his name’s Ben. I won’t give last names and all that sort of thing because of privacy reasons. But super nice guy. And he wanted to list his house, he’s moving out of state and needed to list his house, he needed to sell it the markets super hot, we started having a conversation in May. And he’d done a whole bunch of things to his house, he lived there for 1012 years, done a bunch of improvements over the years, it’s still though was like a late 90s house with carpet in the master bedroom. And, you know, just kind of those sorts of things, the carpet had been, you know, like, replaced more than once, but they’d never, you know, spent the money to do some different things. The value of this home was on the low end, if you did basically nothing to it was 600,000. That’s what we’re valued at. It’s a almost 3000 square foot home and Beaverton area of Oregon, home of Nike, close to Intel, all that for an audience

Adrian  03:53

that campuses out there

Rob  03:55

a great, you know, great neighborhood, the road is a slightly busy street, we’re going to do some mild adjustments, like in the 5% range for that, but it’s a really big lot. He has a gate on it. So you could actually, you know, have the gate open and then go down and the houses set off the road. So it’s kind of mitigated so that it’s like 5% or less adjustment. At the low end, it was 600. The high end, it was 650. And that’s without doing total renovations, new construction, new construction, you know, it’d be closer to like seven, maybe even 725. But this was, you know, a 90s home and very nice and very moving ready. But the issue became like, Okay, so where do you want to be? Do you want to be at 600? Do you want to be at 650 And usually what ends up is the sweet spot and appraised value was going to be in the 625 range. We targeted 625 And the reason we targeted 625 Is he figured if he did the things that we recommended, which were what he could do in a short timeframe which was replace carpet, they had paths and you know, they lived on the carpet for a long time paint and do a few and then like pressure wash the house, clean the roof, do gutter, you know clean out gutters, mow blow landscape, they had to do a railing on their, on their deck, which they didn’t have because it didn’t meet code, just those sorts of things. He has a nephew that was a contractor, we use some of our contractors to fill in the holes, different things he was able to in about a month and a half. Like I said, we started talking in June, late May, early June, something like that. And we were able to list the house by July, I want to say we went live July 7, eighth, something like that. And he was able to get a whole bunch of work done. And he spent about 10 $12,000 getting all those things done.

Adrian  05:52

So timescale there, sorry, I missed the math.

Rob  05:56

Basically took him about five, six weeks, he spent about 10 to $12,000, give or take. And that got him to 625. Okay, just by doing paint and doing different things. Here’s the hard part. We could have gotten him to 650 at no extra cost, if he hadn’t made some of the mistakes that he made, and hadn’t been under the gun. So this is where I’m going to share a screen here. And for our audience will describe this but Adrian, you should be able to see a photo here. Yeah, because the kitchen

Adrian  06:39

already could see one glaring issue that I was bite my tongue on this. Yep, yep. All right there.

Rob  06:48

There you go. And so anyway, I mean, describe as a non real estate per

Adrian  06:53

so beautiful. This is an open concept. I’m guessing that’s a living room to the right or direct. It’s a living, living room. So there’s a nice big open room, there’s plenty of windows on one side of the house here we got the kitchen, glass on the cabinets, we got the bar and everything. And then you’ve got a little nook with the door, there are some maybe you could fit a you know, a little breakfast table there. And then as you get to the living room, it’s so clear that it’s the living room because there’s a hard line in this hardwood floor, beautiful light wood to the left of this image where the kitchen is and then the living room is bisected out by this. What do they call that strip there.

Rob  07:35

It’s basically a transition strip and transit for our listening audience. It is white oak finish on the left. And it is a laminate flooring like a wood like finish. But it’s a little darker, almost like a cherry finish. On the right in the living room, yet, the space is all open. And there’s a transition strip on the floor. And here’s the thing, a long one, it’s well done. Like Lilly, I mean, from a standpoint of craftsmanship, super clean line it fit, it was solid, you weren’t going to scuff your feet. They did it to level or reasonably level, the floors were slightly off level, but it was very minimal. It’s safe, it meets code all of that. But now you have two different kinds of floor one is hardwood, that would have been 10 to $12 a square foot to lay and refinish all as one seamlessly. And then you have a you know, 200 square foot living room that obviously has $3 a square foot cost flooring on it, and a transition right in the middle. And this is supposed to be open concept. So I’m gonna go to the next slide. I just transitioned over there. Yeah. The, to the living room. And it looks great. And it’s one of those things that the room by itself is great. The floor by itself was great. But you have two different kinds of flooring. I mean, it just looks kitschy, right?

Adrian  09:08

Yeah, and the problem is not that it’s a it’s a cheaper floor material. Right? It’s that’s not the call out that we’re making here. You can use cheaper materials and still have a premium experience it is you do get more when you when you put the premium in,

Rob  09:19

right. So there’s two ways that this could have gone right, is tear out the 10 to $12 square foot stuff and put the three to $4 a square foot stuff throughout. And at this price point, I totally could have got away with it. And would have upped the value by 10 $15,000 of the house or flip side. Run the 10 to $12 square foot in there. And I mean the difference would have been, you know, roughly at 200 square feet. I mean that’s expensive. You’re talking about you know 20 503,000 versus, you know 800 to 1200. Right? I mean it’s a big difference. because you would have had to refinish the other floor also at the same time. So

Adrian  10:05

you got to have the capital for that, which is its own problem. One more time for the people in the back. I mean, Option A is literally pull out the more expensive material and put the cheaper one down. Because the continuity of space is more important in this case. Is there a bit in the back there too? Yes. So that’s the thing is now this is just a, it’s an island floating in the middle of a sea of cheaper flooring.

Rob  10:29

Exactly. You have nice white oak finish, you have your granite countertops, slab, you have your nice cabinets that are actually a third stain color of wood for our audience. And then you have a dining room on the other side, that’s also that cheap laminate, which like I said, isn’t a bad material. And it was well laid. But this in

Adrian  10:51

the middle. Now we’ve got three types of wood within I mean, an actual

Rob  10:56

view. So yeah, here’s another view by itself, this hardwood looks great. The kitchen looks great. But look, you know, looking the other way, you’re standing on one kind of wood, and you look across and it’s another. So in the kitchen by itself looks great. But again, you know, you’re making these decisions. And you saved probably 1500 to $2,500. Right. And now to be fair to Ben or homeowner, he made that decision a couple years before, right?

Adrian  11:33

Okay. And so this wasn’t a prep for sale, kind of this Oh, and so it

Rob  11:36

wasn’t necessarily a prep for sale. I mean, they were thinking I’m not going to be here forever. But it was just it was okay with them to do this. This is probably the most, you know, obvious one here are one of the most obvious ones. So I’m just I’m flipping back and forth between the photos here. So they made this, this $2,500, maybe let’s even round up to $3,000 savings, right. And it probably translated to a 10 or $15,000 Flipside value on the other end, because it would have categorized the main floor of this home, which is all hard surfaces to a next level, and a completely next level. And I’ve sold multiple homes this summer in this neighborhood, within a mile or less for with multiple offers. And we’ve gotten a bid up competitively for similar square footage 650 to 680. So I’m not talking crazy numbers here, we could have bid this up, potentially, if there was this was taken care of, as well as one other thing, you guys have all seen it, I won’t even show the picture. Because most of you guys are just listening. But they replaced the carpet. And rather than spend $1,500 on doing some tile in the master bathroom, they continued to have the tile outside of in the master bathroom for the like you literally step out of the shower, and you walk on the carpet. So there’s no hard surface there. So people don’t like that

Adrian  13:13

he’s deeply offensive to me. And

Rob  13:15

here’s the thing, he hasn’t didn’t have a lot of time, it wasn’t in the budget to change. So we listed the home for 625. He did the things he could change, and totally followed our instructions did everything we asked of him within the timeframe and the budget that allowed and we went from 600 He spent 10 to $12,000, we actually ended up in contract, we’re going to close here and another few weeks in contract for 5k over with some nice concessions because of the market. And we were able to negotiate those and kind of push it up. We ended up at 630. So 5k over the list price $630,000. The client is super happy, but you better believe dollars to doughnuts. I’m not coming at him from an attack standpoint. But he hires me to tell him things that uh, you know, let’s be real. Sure. I’m not into having niceness contests, I’m going to be in a caring insensitive way because I have a really Yeah. I told him exactly what was wrong with his house, and exactly why we ended up at 630 instead of 650. And he knew exactly what to expect. And that’s exactly how it played out. So absolutely, I didn’t I didn’t dance around the fact that this was ideal. We just made it hey, this is what we have. So that’s why we priced it at 625 Instead of basically we could have gotten in at 650 If we could have done some of these other things. Yeah, here’s the issue. If it would have been heartbreaking and the biggest reason why we didn’t do it number one was time because he didn’t have to move. But number two is it would have cost after the fact especially in a in a short timeframe, we would have had to pay our person a premium Like our contractors and that sort of thing? Sure, yeah, it would have cost a premium to, we would have had another 10 $12,000 to fix what he did in the previous year or two, when he just made the decision of Okay, this looks nice. I like it,

Adrian  15:20

it works. So and then your return on investment isn’t there? You jumped out of it. But so this is a few things, right? We’re talking about flooring. This is not a flooring episode, guys, this is this is an example that we’re laying out there of how if we could jump in our HG Wells time machine, we could fly back a couple years. If we had put this on the table for him not as, oh, it’s 2000 extra bucks to do this was probably like, well, I don’t need that. But when you look at it in the frame of okay, what am I going to? What am I doing to the value of my house when I make these changes. And I think a lot of people just don’t have these conversations, because they don’t know who to ask, or, you know, I don’t want to call it my real estate agent, they’re gonna make money on me doing this. But a great agency, actually, this is kind of part of the cost of doing business we keep, there’s a there’s a community that you have people who trust you for advice, right, you’re gonna get a check written every time you talk to them. But then there’s also the interior design component. And, again, interior design, I talked to some people, it sounds like a luxury item, it sounds like the kind of thing that you get, when you have so much money to spend, it’s like it’s like a personal shopper or something like that. We can even feel into that, because personal shoppers can save you money too. But the big thing is, is that these are concepts, you know, you can go online, you can watch a YouTube video, DIY your flooring, if you want to save money, there are ways to do that we could get into the pros and cons of taking on jobs. But when it comes to making decisions that are gonna impact the value of your home, this thing is very, you know, homes are very valuable. So when you go when you make a change, it’s not just dollars, I spent 1000 bucks, I’m gonna get 1000 bucks more when I sell my house. These have larger reaching implications on the totality that it’s the big picture of like you were saying continuity in the house has been broken by this decision. And maybe it was broken before maybe it was, you know, maybe he also got a deal on the house because it had old shag carpets in those areas where there’s now hard flooring, and that is an improvement. But I think if you’d flown back in time, and told him five years ago, hey, by the way, if you spend that extra three grand, and you go ahead and get this nice white ash wood all the way through, I’m going to get you another 10 to 15. When we go to get on the backend, this thing unloaded because it’s not going to look like it’s been pieced together. And a lot of people want to attack projects from my room. Right? Right. That’s probably what happened here. Someone improved this from that room, the other room. And it seems cheaper because you know, when you pull up flooring, and you do paint at the same time, for example, you know, certain things can get cheaper. Yes, because it’s we don’t have to be as cautious around the old stuff. And then we work our way down to the floor. But the reality is that flooring is a great example, having a continuity throughout a single floor or something that we make sure still matches cabinetry in different rooms. It can have a big difference in the in the completion of the house, the feeling that this was a well thought up complete project and not just we patched here and there. And now the house is a mix of 90s and 2000s.

Rob  18:19

Right? So I’m going to tell you, I’m going to tell you a secret. And our audience’s secret here, which is I mean, it’s not really a secret, we just we kind of have fun with it within my agency. The cost to bring in our in house designer, project manager, she she’s a designer, she is really a project manager, all designers, that’s really what they are. And then from the point of picking everything that matches that complements, making good choices, making them the components fit what you’re trying to do, is this a long term, you’re gonna own it for 10 years and then sell it or is it you know, two years, so you can be a little more in style, but you’re going to sell it in a shorter period of time, all of these different concepts, it would have cost probably about 500 bucks to have her go out. And basically two years ago, pick everything, colors, flooring, tile, you know, all of the different things that they were thinking about doing from a color from a texture from a finish standpoint, from a durability standpoint, she would have picked all of that stuff for them and with them based on what they liked and so on. She would have done that for probably about $500 But here’s the secret. Okay, and this is what I figured out within the real estate sales side is we don’t actually call her a designer, generally speaking, because no one wants to pay a designer they all

Adrian  19:51

rich people, what do I get out of it? What do I get robbed by the physical in my hands at the end of the day?

Rob  19:57

Exactly. So what we just say is just Generally speaking, when we’re hiring somebody to do this, and there’s different facets of this, but actually 90% of time, I don’t call her my designer. I call her my in house project manager. Sure. And because people have no problem, because they know that they can’t handle the logistics of a Reno.

Adrian  20:17

Yeah, which, by the way, is one of the legitimate benefits of an interior designer, I think people don’t realize that all and managing these projects is, it’s a bit, it’s a lot to chase tail for, you know, while you’re trying to work your full time job.

Rob  20:32

Yeah, it’s huge. So the project management is way bigger than the actual picking of the materials. That’s, that’s literally a few hours at the beginning of the job. Really, the work is on the back end of making sure it’s coordinated, making sure it works for the right timeframes, and so on. So we just call her Oh, we’ll bring in our project manager, and she’ll handle it. And she also at the same time coordinates all of the subcontractors and timing and, and everything else that goes through the process. And we do this, this is the person that can add huge value, and we just maybe added $500 to the, to the project. And by picking the right things and getting her in at the right time. You know, you might add 25 to $50,000 worth of value for what three $4,000, maybe at the most. So the point is, is that’s how you leverage. And that’s how you get to, you know, get these 234 5x of your investments. Yeah, just being smart. Literally, they already had to spend the 10 to 12. If they would have spent two to three, maybe four, in the last previous years. That two to three was the big pivot. It wasn’t the tenant. Well, it’s

Adrian  21:50

a great example, too, because it’s this isn’t about like color matching. I think a lot of people think I have an eye for designer I’ve got you know, I’ve got a style. I don’t want someone to come in and tell me to do a different style. It’s not oh, by the way, your designer does either way you

Rob  22:01

don’t you Yeah, yeah. 100 Shades of Grey. Pick the two from us. Yeah. I can’t do it.

Adrian  22:13

Yeah. And this this match. I mean, those that flooring match that fireplace, all right. I mean, it wasn’t great. It wasn’t awful. But it took putting it in to step back. And then see, like we said, there was within that picture, there’s a little square, I could see three different very, very different shades, and more importantly, tones of wood, right. And that’s the thing you can’t you can’t know what you don’t know until you’ve gone and spent the money and made that mistake. And that’s, that’s the wonderful thing about interior designs is that, you know, she’s gone to school for this to study the common mistakes, the errors that are very, very easy to make for anyone, even for a professional, and then learn how to avoid those. And, you know, maybe take some data that you wouldn’t necessarily take to the store with you.

Rob  22:56

Right? So hire the right people in summing this up. hire the right, play the long game growing theme for us here. Remember, we’re playing check, not chess. I mean, I’m sorry, not checkers, we’re playing chess, and know that everyone’s playing chess, even if they think they’re playing checkers. It’s just because they don’t know they are. So three, four or five moves ahead and bring in the right people. Make smart decisions. People that’s really, that’s really what we’re asking. Come on audience make live deliberately. Exactly. There you go. So your

Adrian  23:29

house is when it is it is your biggest investment most typically, and it’s worth the time and a little bit of extra cost to make a difference. You know, in this case, this person would have spent another 500 bucks maybe, but potentially made well, more than that back in just a few years. So, okay, here we go.

Rob  23:49

Thank you. All right.

Adrian  23:50

Thanks so much for your time today, guys. We’ll catch you next week on the get rich, slow podcast. Have fun out there.

Intro  23:56

Thank you for listening to the get rich, slow podcast. If you liked what you learned, please subscribe, rate and review so we can grow wealth for even more families.