S2E19 – How To Add Value To Your House | Best Home Improvements For Value

Are you a homeowner or a first time home buyer wondering which improvements add the most value to your home? Which value add improvements should you consider when buying a house? In this episode, we discuss the best improvements to add value to your home as well as those to help maximize the price if your considering selling while you become The Educated HomeBuyer.

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Connect with me 👇 Jeb Smith (huntington beach Realtor/orange county real estate) DRE 01407449 Coldwell Banker Realty ➡I N S T A G R A M ➳ https://www.instagram.com/jebsmith ➡Y O U T U B E ➳https://www.youtube.com/c/JebSmith

Connect with me 👇 Josh Lewis (Huntington Beach Certified Mortgage Expert) DRE 01209148 Buywise Mortgage M:714-916-5727 E: josh@buywisemortgage.com ➡I N S T A G R A M ➳ https://www.instagram.com/borrowsmartjosh ➡Y O U T U B E ➳https://www.youtube.com/c/buywiseborrowsmart

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👕 – Merch – https://jebsmith.myspreadshop.com/

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For Show Notes, See Below 👇

[00:00:00] This is the educated home buyer, everything you need to know to buy, right? Borrow smart and build wealth through real estate ownership.

[00:00:13] Jeb Smith, Huntington Beach Realtor: Today we’re gonna be discussing maximizing your home’s return on investment. A lot of times we get new home buyers reaching out, asking about improvements that they can do to their homes to increase their property values. In addition to that, we often have homeowners who have owned their properties for years asking similar questions.

So in today’s episode what we’re gonna do is we’re gonna take some time and we’re gonna talk about return on investment with regards to improvements to your property. What can you do to maximize and get the most return, by doing things to your home to improve it’s quote unquote value? Josh, when you hear me say, these types of things coming from a background of flipping property, doing value add in the side of investment, what comes to mind?

[00:01:02] Josh Lewis, Certified Mortgage Consultant: So it, it’s funny, Jeb, in different markets, ROI is gonna look really different in the caliber of the upgrades and the quantity of the upgrades that you’re gonna do. Bruce Norris, a mentor of mine in the flipping space, he has this idea of different quadrants. There’s four quadrants that you’re in at any given time in terms of the market, and it dictates what you’re doing.

So I, as a homeowner would look at this similarly to an investor or a flipper. Not that it’s all about that, because when you’re gonna live in that home my primary interest is in enjoying my new kitchen and enjoying my new man cave, enjoying my new pool, versus saying, is this an investment that I’m going to get money back from?

For the most part, you are not going to get a dollar for dollar return on your investment. So think about that and remember from the perspective of when we were flipping was in a period, it wasn’t buying nice homes and making them really nice and selling them for top dollar.

It was in a market where there was a glut of homes and you could get the really ugly ones really cheap, and it wasn’t a choice of what you could do. It needed two bathrooms. It needed a new kitchen. It needed flooring throughout. It needed new doors and moldings. You may need to restucco the outside. You probably needed windows, you probably needed a roof.

So from that perspective, it was how do we get it from subpar for the market to the best one in the neighborhood? And that varies, or that’s different for an owner. You are dealing with sellers all of the time. Buyers in terms of what they want. And we’ll go through some numbers here.

When I look at them. For me, whenever I see these numbers, I go, “I don’t know. That’s kind of crazy and, like falsely specific that we could narrow down and say, I’m gonna get a 91% return on doing a kitchen.” Because you and I both know Jeb, we’ve seen people that have a home in a certain price range where it would be reasonable to do a 50 to $60,000 kitchen, and they go and do $125,000 kitchen.

[00:02:56] Jeb Smith, Huntington Beach Realtor: Yep. 

[00:02:56] Josh Lewis, Certified Mortgage Consultant: There’s no world, they’re getting 90% back on that. So why don’t we talk a [00:03:00] little bit about what. these numbers look like on average and what probably the top of the list looks like cuz they’re the common things. They’re the things that, that you would expect to be there. And the things that if you stick to a budget, can see a nice return on those funds.

[00:03:14] Jeb Smith, Huntington Beach Realtor: Well, you said two things that make me think of other things when talking about doing value add to properties. Oftentimes I’ll come to a house for a seller, for example, and we’ll be talking about selling their house and they’re asking the questions, “well, what can I do to improve the house to maximize the price? What can I do to add value to the property at the point when they’re selling the home?”

And my wife and I always joke, it’s like, if you were gonna do these things at the end to sell the home, Why didn’t you do them a couple of years ago and actually enjoy the upgrades in the process versus just doing them at the end to maximize the price?

And we’ll talk about some of those things that we talk about in those conversations that you can add value, but let’s use me as an example here. Like I live in a property where we could do a room addition, to connect our house to our garage, cuz our garage is detached and we could do a room addition to connect those two, but it would only add approximately 120 square feet or so.

And I know the cost to do that. It’s gonna be 75,000, a hundred thousand dollars, somewhere in that ballpark. So the cost per square foot is really high. And so when you look at that, adding an additional a hundred, 120 square feet onto my house, does it really add value? In some cases, you would say, yeah, because it adds 120 square feet.

It could be a downstairs bedroom, that sort of thing. But the value isn’t really in the square foot as much as it is in having that downstairs bedroom is more important to people than say the additional square footage, if that makes any sense. So you’re not really, always going to get the value that you think you might be getting.

For me, the value isn’t in the downstairs bedroom. The value to me, Is it having more space for my kids to, to be out of the living room where my wife and I can enjoy the TV and not having to watch, what they wanna watch. That’s the value. The value to me isn’t getting another $50,000 from my house if I wanted to sell it.

So for each person it can little look a little bit differently and we’ll talk about what that looks like. So, you know when thinking of the concept of return on investment. Again, it’s going to look a little bit different for each person, but I think when most people think of this, Josh, they’re thinking improvements to the property.

What can I do? Does the kitchen add value? Does a bathroom add value? Does, adding an ADU to my home add value? So I think that’s the direction that we probably want to take this conversation. So what are your thoughts? 

[00:05:38] Josh Lewis, Certified Mortgage Consultant: Well, as part of the conversation, Jeb, hopefully if you’re a first time buyer, you haven’t tuned out and said, Hey, they’re only talking to homeowners today in terms of what can you do to add value to your home? 

Cuz this discussion is also gonna help you when you are analyzing two properties. Yeah. One that needs some work and has some deferred maintenance. One that’s absolute peak, top of market perfect. There’s more to it than that, but we wanna look at those [00:06:00] things. 

And Jeb, a thing that you said there specifically about your house, if you’re okay about us continuing to use you as an example. 

[00:06:06] Jeb Smith, Huntington Beach Realtor: Yeah, for sure. 

[00:06:06] Josh Lewis, Certified Mortgage Consultant: I want to go back and say something about your house when you bought it. You put a new kitchen into your home after about five years of being there and the ROI on that was probably pretty low.

And the reason why is the kitchen that you got with the house wasn’t bad. You moved in and it was a newer kitchen, probably done within the last seven to 10 years. Would you say? 

[00:06:28] Jeb Smith, Huntington Beach Realtor: Yeah, something like that. 

[00:06:29] Josh Lewis, Certified Mortgage Consultant: The person did not have modern taste, current taste, I should say. It was very modern. They were shiny cabinets slab doors. You didn’t like the colors, you didn’t like the appearance, but in terms of living with it, it was a nice kitchen. 

[00:06:41] Jeb Smith, Huntington Beach Realtor: It was definitely livable. Absolutely. 

[00:06:43] Josh Lewis, Certified Mortgage Consultant: Livable. It functioned perfectly. So now, if that were the original 1976 kitchen, you would’ve realized a much bigger ROI from taking it from dated, antiquated in terms of modern appliances. Solid surface countertops, whether it’s quartz or granite, that type of stuff. 

So you want to be thinking in terms of what am I giving up and where am I going. On that front, my wife wants to redo our hall bath for the third time. It would be like literally I would’ve been now like a $60,000 hall bath if we redo it again, and it would be very nice.

My ROI would be almost nothing. No one would value it above and beyond the way it currently sits. We would enjoy it more, but I don’t think the market would value it any more than the way that it currently sits. So I think that’s an important concept for a buyer analyzing multiple different properties and a homeowner saying, what are the things that I’m going to do in terms of maximizing value?

What is subpar for the home and how far can I take it for minimal dollars? And when I say minimal, it’s gonna vary. Like if you have a house in Newport Beach here in California, and it’s a two and a half million dollar house, it’s probably gonna need a $125,000 kitchen. If you’re in Anaheim when you have a $750,000 house, it would be really inappropriate.

Still be rad to have $125,000 kitchen in terms of your day-to-day enjoyment, but you’re never gonna get the dollar for dollar out of that. So as Jeb so keenly pointed out, what are you going to enjoy, what do you value? But then also what’s reasonable, realistic for this property? And a concept, Jeb, it’s sort of like you want be well-rounded as a person.

You don’t want to be really good at four things and terrible at something else. You want your house to be fairly well-rounded. You don’t want, beautiful, amazing modern kitchen. And then you go and you got shag carpet in the living room. You have old six panel doors throughout the house with the brass ball door handles.

You want to keep things on an even keel where it’s level across the board. And Jeb, you probably see that all the time. You walk into a listing and it had amazing pictures of the kitchen in the listing and you walk in and you’re like, I see why they led with the kitchen. The rest of the house doesn’t really match up to that one really cool [00:09:00] thing.

Or oftentimes it’s a backyard. They do a cool job with an outdoor kitchen or something. But it’s not consistent across the value of the home. I think that’s an important concept for people listening at home to think in terms of a balance, of making sure I don’t have some part of my home that I’ve over improved relative to the rest of it.

[00:09:17] Jeb Smith, Huntington Beach Realtor: While we’re talking to buyers directly at the moment here, because I think it’s important to also note, when oftentimes you get two buyers comparing a property, right? They might be comparing two properties. They see a property, they like and it needs some work, and they’re trying to justify the value of that property or the price for that property.

And they’re looking at a comparable home, maybe it’s a model match that has been completely redone, and then they see the value of the home that they’re looking at, and they say, well, in order to get the home that I’m looking to purchase, like that house, it’s going to cost me $250,000. 

Therefore, let’s say that house is worth a million dollars, for example, the one that’s completely redone, that means I should be able to get this house for $750k because it’s going to cost me $250k to get that other house. As we mentioned earlier, you don’t get dollar for dollar in those upgrades.

It would be really nice to just, “Hey, my cost is this. I’m gonna subtract it off of the one that is perfect and I should be able to get it for this. Therefore, they’re both gonna be equal when it’s all said done.” And that’s not the reality, right? You can’t go in expecting that $50,000 kitchen that you’re going to put in is just going to come off the price because the kitchen needs to be redone.

And especially in the market that we’ve been in over the last couple of years. We’ve seen homes that haven’t been comparable to the ones that have sold just six months, eight months ago. You’re not getting necessarily the same price or the same value, if you will. Those homes that need work are still selling at a relatively higher price than they normally would be because you’re in a market with a lack of supply demand is still relatively high compared to the number of listings out there. 

Therefore, it’s sometimes a little bit more difficult to be able to look at a home that needs upgrades and really determine where you should get that home. So, we’re gonna be talking about the things today that we see in properties that adds the most value, and sometimes value, as I mentioned earlier, isn’t necessarily in price.

It’s what somebody wants in a home. Josh, you and I talk to buyers all the time that have just enough money to be able to get the home, right,? So they don’t have the money to go in and do the improvement. So if you got two homes side by side, one maybe cost a little bit more, but has the redone kitchen.

People want the one that already has the redone kitchen. If they don’t have the money to redo the kitchen. Therefore that home might sell at a premium because more buyers just want the kitchen that’s redone, or they don’t have the design taste. They don’t have, the contacts to be able to do the work.

Therefore, The home that needs the work is the one that’s going to get the most attention when the real value might be in the one that doesn’t have the upgrades, the one that’s sitting a little bit longer on the market, the one that has a motivated seller here on the left that really, you know it would be willing to sell their home [00:12:00] at a lesser price.

But people can’t do it because of one reason or another. So Josh, when I think of upgrading homes, couple things come to mind to me. Curb appeal sells properties, kitchens, bathrooms sell properties. What are your thoughts on that? 

[00:12:16] Josh Lewis, Certified Mortgage Consultant: You just nailed it. If I look here, and we’ll put a link to this in the show notes here, what is this website? The website’s called remodeling, but they have a cost versus value report here. And the top things that we look at: Garage door replacement, curb appeal, manufactured stone veneer, curb appeal, entry door replacement, curb appeal, siding replacement either vinyl or fiber cement curb appeal, minor kitchen remodel, which is what you said, kitchen and bath.

Window replacement, curb appeal, but also functionality. And then it goes to bath, remodel, different types of wood and roof replacements. Everything comes down to what makes for a fast sale for you as an agent and a seller. And what makes for a top dollar sale? It goes back to curb appeal.

And then internally, what are the things that you enjoy? Most people want to have a nice shower, have a nice bathroom when they’re getting ready in the morning, but they spend a lot of time, and when they have family over, they’re in that kitchen. So those are the big things and they’re the most expensive things.

Jeb, we can talk about something super simple. People wanna list their house. What is your recommendation on this? I know in 2010, 2011, 2012, most agents were saying, “We need to at least paint and carpet. It just gives you that polish that doesn’t really change the house, but it makes it look cleaner, fresher, lighter, less dated and people just don’t really like, dingy paint and carpet or that someone else has lived on.”

So there’s those super simple things, low dollar, that it’s not so much that you’re gonna get a dollar for dollar return on it, but it helps people see the bones of the house and the other stuff. Then we transition into absolutely curb appeal and the functional enjoyment of the interior, of the space.

And I guess you have a piece as a flipper that I always thought through are also like the functional things. A roof. No one really says, “oh, I love that house has a bitchin’ a new roof.” But they will absolutely look and go, “that house has a roof that looks a little janky, doesn’t look great, number one, and it worries me that I’m gonna have leaks or I’m going to have to replace it in a short period of time.”

So I, I would really say those three categories. Functional things, like if you have old aluminum windows from, the seventies that are gonna be single pane, leaky in terms of draft and cold. Even for us in Southern California, it’s not that cold, but it gets cold enough that you will wish you had double-paned windows.

So there’s those functional things, then the curb appeal things, then the enjoyment of the home items. Is that fairly safe to say?

[00:14:46] Jeb Smith, Huntington Beach Realtor: Yeah. I’m gonna disagree a little bit on a couple of things here. So you mentioned paint, carpet, don’t really transform a property. Don’t really change it.

I would disagree in the sense that changing paint and carpet in some properties, depending on what it’s coming from [00:15:00] versus what it’s going to can transform a property entirely. Back in the day when I sold a lot of foreclosures, a lot of REOs, that was one of the things that the bank was willing to do without question, right?

They were willing to go in, paint and carpet. And I can’t tell you how many times you walked into a property and you were like, this is awful. I would never even consider living in this place. And then you saw it afterward and you’re like, wow. Not bad. And it’s comparing it to what it was, right?

So if you’re walking in and new carpet and new paint As a buyer, it might not mean anything to you because for you, you might want, vinyl flooring, you might want tile flooring, you might want wood flooring, whatever it is. So the carpet there is eh, to you, but if you saw where it came from or if you’re looking at a property on the market and that’s the home you wanna purchase, just know, transforming some of these little cosmetic visual things can really change how a property looks entirely. 

I mean, removing a wall from a property doesn’t really add value to it but it can change the way that you feel the property, the way you look at the property, the way that property flows. And in turn, it can transform your mood almost. And that sounds really weird to say, but just transforming those couple of things, emotional things makes a property that much more enjoyable. 

Now the question is value. We talked about value. Josh mentioned some big ticket items that do or do not add value. I wanna talk about those. Let’s talk about things like roofs. Things like plumbing, for example. Things like windows. Do they add value? The reality is, yeah, they do, they add some value, but to you as a buyer, it’s like buying new tires for your car.

It sucks. Like you go out, you get new tires, you need them. You don’t really wanna spend a thousand dollars on tires, but, at the end of the day, it’s a safety thing. It, it gets you the next 20, 30,000 miles, whatever on your car. Plumbing is one of those things when you see a house that has old galvanized plumbing.

There’s still a lot of homes here in Southern California that have it because they were built in the fifties and the sixties, and they still have that plumbing, seeing that sort of thing. Seeing roofs replaced, windows replaced, those are big ticket items. To replace a roof. 15, 20, $30,000 depending on the size of the roof.

Plumbing in a house, you’re talking, probably five, 10, $15,000. HVACs, the furnace, heating, air conditioning, that sort of, though all of those things add value to some extent, but as a homeowner, When you’re thinking about doing some of these things, if you’re thinking about selling your house, for one, and I know I’m talking to a limited amount of people here on this podcast that are thinking about selling.

If you’re thinking about selling and you’re thinking about doing some of these things, before you do those, talk to a real estate professional in your market to figure out does it really add value to your home at this time in the market? Because I can tell you, coming outta the last couple of years, when there’s just a lack of inventory, buyers are willing to overlook certain things because they don’t have a lot of options. 

Therefore, they don’t care if there’s a new water heater per se, or if the house has new windows or whatever [00:18:00] throughout. They just want to get a nice house in a nice neighborhood. Whereas if you’re sitting in a market, for example, and there’s a lot of inventory, a lot of options for buyers to choose from, that’s when, how do you separate yourself from the next house?

How do you add value? How do you do something where a buyer is more likely to look at your home versus the other homes? Price is gonna be number one always, but they’re next gonna look at what can I do to move in and not have to do anything? Where can I finance the cost of the improvements that already been made versus having to come up with the money out of my pocket?

And Josh, we talked about curb appeal. Curb appeal is one of those things. Does it add value? Yeah. But what it does more so than anything, it is, it gets more buyers interested in the home, right? What we know as a real estate agent selling property is, exposure drives demand drives price.

So if you want the most amount of money for your home, you need the most exposure for your home. But what happens is people driving by your home, if it’s ugly on the outside, some people aren’t even gonna stop. They’re not gonna want to go in. They don’t care what’s inside of the property because the outside. Even though the exposure got ’em there, it’s not going to equate to a higher price.

So you want to start by people getting the warm and fuzzies from walking to the house, right? People buy emotionally, they justify logically, So if they pull up to the house and they can see their kids playing in the front yard, they can see dad working in the garage, they can see the Christmas decorations, where they’re gonna go. All of that stuff is emotional. 

For a seller that leads to a higher price and those are the things that you have to think about when thinking about value adds to a property. Again, it’s hard to equate into a dollar amount.

So that’s why we have to start looking at comparable homes and figuring out what one home might sell for versus another to figure out, okay, how much value am I really adding? That’s what I think of when I start thinking of value add.

[00:19:52] Josh Lewis, Certified Mortgage Consultant: Jeb, let’s think in terms of this, everything price-wise relates back to supply and demand.

So if you’re a homeowner and you’re considering upgrades and improvements, say how does this change the supply of homes in the market if I were to sell? And what I mean by that is there’s a finite amount of homes on the market. But there’s hardcore fixers that are terrible. There’s sort of middle of the bell curve that need some work. And then there’s the turnkey that is just amazing and someone could walk in that you remodeled a year and a half ago. 

So in the current market, we always have to think in terms of supply and demand. So let’s refocus back to 2008, 2009, 2010, when I was flipping a lot of homes. There was a huge supply of homes on the market and little demand relative to that supply.

But what there was a small supply of is those turnkey homes. So where we were making our money was we were buying at a discount because there were way too many gross, bank owned properties and not enough buyers, so we could buy them at a discount. Then we could improve them and sell them at a premium because there was a lack of supply [00:21:00] of those and the few buyers that were in the market said, “Hey, I’ll take that beautiful turnkey one that I can move right into.”

Now, flash forward, Jeb, in 21, 22, you and I were talking, we would have people saying, “Hey, these prices are getting outta control. I wanna buy a fixer. “And we’d say, “okay, there’s a limited supply of fixers because we’ve come through 10 years of pretty good prosperity in the real estate market and the economy in general. Most people have upgraded and fixed and improved their homes. 

But more importantly, the discount that those homes sell for is not enough, which you kind of referenced this in a different way earlier here in the episode, Jeb. If there’s $200,000 of work to get it to A1 tip top shape, you might get a hundred thousand dollars discount. Or worse yet, a $60 or $70,000 discount. 

So you’re thinking, Hey, I’m below market but to make it as nice as the turnkey one, I would need to do all of those things. So think in terms of all of my improvements, think as a seller. So, with when you’re a buyer, even when you’re considering homes and looking at them, think in terms of a seller, what supply of these is there on the market and what are buyers looking for in the current market?

As a buyer, you’re kind of keenly aware, Jeb, you said something very important earlier that a lot of people in the current market with prices elevated, they do not have enough money for down payment, closing costs and $50 $60, $80, $200,000 of repairs. So we have a limited supply of those nice turnkey homes. And even though we have limited demand right now with prices high and interest rates high, a lot of people go after those top of market properties.

So we’ve been talking, those really nice turnkey things that top 10 to 20% of listings, if they’re priced right, they’re selling quickly at a premium, oftentimes with multiple offers. Even though we may be saying the market as a whole is actually down. So when we’re talking about ROI, you really have to think in terms of who am I when I go to sell this property?

And I’ll throw it back to you, Jeb, with a last thought there. If you’re gonna live in your house forever, Do you care about ROI or do you just care about, “I want this and I’m going to enjoy this”. I’m gonna be 50 in two months, Jeb. We’ve talked, there’s a good chance that we don’t ever move. I don’t need to move at any point. 

So from that perspective, if I say, Hey, I want this for the next 30 years, from age 50 to 80, I can justify it. I don’t necessarily have to think in terms of a seller, but for most people who are going to sell at some point, think both in terms of your enjoyment and then think of yourself as a seller and how that impacts that supply demand equation and how much you’ll be able to get back out versus what you are paying for your improvements.

[00:23:33] Jeb Smith, Huntington Beach Realtor: You said something really important there that you know me when I do upgrades to my house, I never think of what it’s gonna get me in value so much. I, that’s what we want to do to the property. That’s essentially what we’re gonna do, right? Like the room edition, we’re contemplating, it’s like we know that the value for most people probably isn’t there, but for us it is because we just need more space and we like the location and we like where we are and we can see ourselves being [00:24:00] there for an extended period of time.

So those are things to think about. But we made some notes, so I thought we would just go over some of the things that you can focus on to do some value add. So we mentioned, kitchen remodels. We mentioned a little bit about bathroom remodels. 

Things about converting, we’re not in an area that has basements here in Southern California. But converting a basement. Converting an attic, adding an ADU to a property, some sort of property addition, those all add value to the property.

Now, how much value, hard to say, right? How is that compared to what it costs you to do it. That’s what you have to figure out. But in addition to that, things like, we mentioned Windows, any energy efficiency things, but here’s the key. Solar… 

[00:24:42] Josh Lewis, Certified Mortgage Consultant: Are we going there?

[00:24:43] Jeb Smith, Huntington Beach Realtor: No, we’re not gonna go deep into solar here, but solar is one of those things I want you to contemplate. As someone buying a home, as someone that owns a home, adding solar to your home, does it truly add value? It depends on the buyer. Some buyers want it, therefore the value is there. Some buyers don’t want it.

They hate the idea of solar because of maintenance costs. Sometimes it’s leased and the lease has to transfer. There’s just so many things around it that may or may not make it make sense, and I don’t want to do a deep dive into that, but just if you’re contemplating solar, spend some time and really think about it. Talk to some people that know it. Call us and have a conversation. 

But in addition to that, smart home technology. People are into smart homes, smart home, locks, lighting, thermostats. Anything that can be operated from your phone is a value add to a lot of people out there.

In addition to, we talked about, curb appeal and so things around landscaping add. Visual things in theory add value just because it gets more buyers eyes on your property at the end of the day. And that’s what drives prices. 

[00:25:54] Josh Lewis, Certified Mortgage Consultant: It goes back to curb appeal, Jeb. Again, we’ll go back to Josh getting old. I’m gonna be 50 next month. I’ve been walking, four or five mornings a week and walk through my neighborhood. In Southern California, largely tract homes. So what does that mean? You have four models that just get repeated over and over again. I can walk by one house and go, that house is so bitchin’ and I would love to live there.

And then you walk by the same house six houses later and you’re like, that would be so depressing to pull in that driveway every day. And a lot of the stuff here on the list are the things that we’re talking about. The ones that I really like. Cool garage doors. Cool front doors. Cool windows, awesome landscaping, hardscaping. A nice driveway.

So none of these things are cheap. But a lot of the things here that are at the top of the list are the things that I’m noticing curb appeal wise. Obviously I’m not going in those houses. But I think it is important to, to note all of those things. The smart home stuff is important. I went and looked at houses with a friend of mine going through a divorce and walking through those houses, little things like a nest thermostat always got pointed out. 

And that’s pretty simple. Those things have been around for six or seven years now. They’re pretty [00:27:00] mundane. But even that a buyer likes looking over the cool piece of technology on the wall versus a weird piece of yellowed white plastic that you push some buttons on.

So thinking really in terms of what’s gonna add to the appeal to your home for yourself and for people coming after you. Considering your local and market trends. Jeb, that’s where someone needs to rely on experts. Hopefully your realtor, your Jeb is familiar with design trends, market trends in your area because how often do things change?

I mean, it’s not overnight. At one point the, everyone wanted to have brushed nickel hardware in their house, and then it was black. And now you look, now the black’s not cool anymore. You have to have the bronze. And at one point the bronze would’ve been the worst thing you have. So keeping in touch with those trends.

But on that topic, Jeb, how do you advise folks in terms of doing trendy stuff to their house versus doing more timeless things that will age well. 

[00:28:02] Jeb Smith, Huntington Beach Realtor: We see people all the time that take 10 different trends and throw ’em all into a house and it’s just like this glut of just modern disgust, if you will. No, they’re all trends in their own, but like the kitchen is one, the bathroom’s another, the flooring goes with this. Try to stay away from that. Again, more timeless stuff is where you wanna focus. I talked to Josh this morning as we came in. They’re doing the bathrooms in our office building.

And if you walked in those bathrooms right now, you’d be like, wow, these are very like modern, contemporary. The design is there and it’s been in style for a couple of years, but I’m gonna tell you in the next couple of years, what’s in that bathroom isn’t gonna be the taste that is going around.

They’re kind of on the latter part of the trend that’s happening right now. It looks nice. It’s beautiful inside, but it’s a little over the top with regards to, some of the style. So just be careful when you’re doing that sort of thing. I think it’s important to not go over the top right.

If you don’t have the taste, or even if you have the taste, run it by a couple of different people and just see because oftentimes you can get, a little too carried away wanting to have all of the different styles happening at one time, and it can really make for, just a property that is almost too much with regard.

Frankenstein. Franken style. Yeah. Frankenstein. 

[00:29:20] Josh Lewis, Certified Mortgage Consultant: And Jeb, we’re not saying take your house down to the lowest common denominator so that it’s beige and appeals to everyone. No, we’re just saying don’t be on the bleeding edge and have all the coolest trendiest things that you saw mishmashed into one house.

[00:29:33] Jeb Smith, Huntington Beach Realtor: Agreed. So Josh, if somebody is talking about they’re looking to buy a house maybe they own a house and they want to do these upgrades, don’t have the cash available, are there ways for people to get the money to do upgrades to do these value ads? 

[00:29:48] Josh Lewis, Certified Mortgage Consultant: In 2020 and 2021, we did a ton of cash out refinances. There were a lot of people who were able to get some of the equity outta their home that had appreciated, lower their interest rate and get all of [00:30:00] their improvements covered. Sort of best of all worlds. Now what we’ve seen over the last year, most people who bought 2021 and before are sitting on a really good interest rate at a fairly large amount relative to the $50k, $100k, $150,000 that they would need for their remodel and renovations.

So probably the most common tool for that is the home equity line of credit. It’s not a perfect solution because as we’ve seen a year of fed rate hikes here, you’re looking at a rate close to double digits, even for the most well-qualified borrowers. Now at some point when rates come down, it will trend back down. But when rates hopefully moderate and you could possibly look at combining that with your first mortgage into one new single first mortgage at a fixed rate that you can pay down.

There will be a little bit of a cash out hit for that cuz paying off that second mortgage will be treated as cash out. You can also get fixed rate seconds. A lot of times with home improvements, people don’t like that cuz they’re not sure what their budget is going to be. They’re like, I think it’s gonna be 40 grand, but what if I go to $50K or $55k or $60k?

They can oftentimes take a larger line of credit and know I’m only gonna borrow what I need versus that fixed rate second. So those would be the big ways of doing it. Cash out refinance, which is less popular with rates high right now. Home equity line of credit, it’s a variable rate and they’re very high right now but it gives you that flexibility of only borrowing and only paying on what you’re actually using. Or you can do a fixed rate second.

I guess the other one that we should talk about, Jeb, cuz we do often talk on this show to buyers, renovation loans. I have a client right now, they kinda got priced outta the LA market, but the husband is a contractor.

He can do all of the work at a reasonable cost. Well, they found a horrible home for $400,000. $450,000, I think is what it is, and it needs about $300,000 worth of work. They don’t have $300,000. So the FHA 203k, the Fannie Mae Homestyle renovation loans, those can make it possible to acquire a distressed property like that and then finance the improvements as part of your purchase.

And when you’re done, you have a 30 year fixed rate so that you’re not looking at having to go get a new loan like you sometimes have to with a construction loan. So if you’re looking at doing, a lot of options. Pros and cons to each. Talk to a mortgage advisor that’s familiar with all of them and can do that side by side comparison for you and help you pencil it out.

[00:32:21] Jeb Smith, Huntington Beach Realtor: Yeah, and if you need a mortgage professional anywhere in the US, there is a link in the description below. But here in the state of California, you also have something called a HERO loan where you can do energy efficiency improvements to your property and they’ll finance it on your property taxes.

Things like windows, solar, like we mentioned earlier, those sorts of things can be financed with that HERO loan. I don’t have pros and cons, around that. I’m not really super knowledgeable around that whole space, but I do know you’re able to do some of those improvements with that.

But if you wanna know more about refinancing, we did an episode on it, I think it was Season 2, Episode 15. Just a couple episodes ago where we talk about refinancing in detail. So if you are a [00:33:00] homeowner, check that out. But I think this is a good place to leave it, Josh. Talking about value adds to properties, what you can do.

So hopefully you guys found some value in that. As always, we appreciate, the continued support, all the comments about how we’ve helped you guys so, continue to listen, continue to reach out and let us know topics you want to cover. 

But until next time, Adios… 

[00:33:20] Josh Lewis, Certified Mortgage Consultant: And Vaya con Dios!

Thanks for listening to the Educated Home Buyer. Want to connect with us or to a local expert in your area? Please reach out at the educated home buyer.com/expert. If you found any value today, please be sure to rate and review us on your favorite podcast platform. In addition, we ask that you share it with your friends and subscribe to us on YouTube and make sure to follow us on social media.

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