Episode 004: How to Rehab a Property for MAXIMUM Profit!
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Episode 4: Show Notes
In today’s episode we get to hear from Andrea, the design expert in our business, about rehabbing a house for MAX profit. Andrea has years of experience rehabbing properties and working with contractors and has mastered the art of repairing and upgrading a property to the optimal degree for maximizing your profits.
Andrea will share what are the most important areas of a house to focus on when doing a rehab project.
She also shares a great tool for how she manages and keeps track of the different material selections for each rehab project and the system she uses to keep track of it with the contractors.
Here are a few takeaways from today’s episode:
- Doug and Andrea talk about the importance of Gratitude in all aspects of life & business.
- Understanding the rehab condition of the “comps”
- Andrea goes into detail on the “5 main areas” to focus on for Max profit!
- What gives you the most “bang for your buck” in a rehab.
- Working with your contractor and keeping things organized.
Resources mentioned in the show:
- Doug and Andrea use the Gratitue365 app to journal things that they are grateful for. http://gratitude365app.com/
- Andrea mentioned she uses Podio as a tool for working with your contractor. There are SO many other benefits to using this as a Contact Relations Management system. We run our entire business out of this software. http://Podio.com.
Episode 4 Transcript
Download Episode 4’s Transcript
Doug: Hello and welcome to episode four of Spouses Flipping Houses, thank you thank you for joining us, we’re really excited to get into it today. Andrea, how are you doing over there?
Andrea: I’m doing good, how are you?
Doug: Today I’m great. I’m actually very grateful. I’ve had a theme of gratitude in our household in the last week or so, and I’m just really grateful today. I’m grateful that here we are, you and I, middle of a weekday, we’re sitting here in our home office slash recording studio [chuckles]–
Andrea: [chuckles]
Doug: — recording a podcast about topics we love, and we’re going to go to lunch after this… and I’m just grateful. This business has allowed us to do that. I get to work with my best friend, my spouse, every day, and I absolutely love it. And we have things coming up that we get to go to because our schedule is flexible.
And I just think back to when we were initially wanting to get into business for ourselves and the reasons that we wanted to do that, and it wasn’t necessarily trying to create some certain amount of income per year for our lifetime or anything like that, it was more about the freedom. Freedom that working for ourselves, having our own business, would allow us to have. Freedom of schedule, freedom of lifestyle.
We never wanted to miss one of our kids’ sporting events or dance recitals for the world. They are a priority for us, those kinds of things. And we get to do that and experience that, so I’m very grateful.
Andrea: Me too. I’m glad to hear you say that. Actually on our website, we have an e-book that’s “Eleven Tips for Successfully Working with Your Spouse”, and that is one of the tips that I have listed in there, and I really feel like it’s probably the most important one.
Because if you’re focused on what’s negative in your life, then even the good things aren’t going to seem that good to you. So focus on what’s good.
Doug: Absolutely.
Andrea: And those things will just become more evident. All the good things will come to light. I think it’s so important. There’s actually been research studies that prove how it improves your physical health, your immune system, it improves your overall psychological health, the way you socially interact with people…
Gratitude is just huge, it’s so important. There’s actually apps you can use– Doug and I both actually use this app called “Gratitude 365“…
Doug: Yeah, it’s called “Gratitude” — let me just verify that, but I believe it’s called “Gratitude 365”, is that what it’s called? Yeah. And it’s just a very simple app — it’s a journal. It’s a gratitude journal. There’s a spot every day for you to jot something down, or put a picture in or a video, of what you’re grateful for that day.
And so I’ve been doing that for about a year and a half and Andrea’s been doing it for a while now, and it really is true, shifting your mind into that mindset of being thankful for the things that you have, even when everything else seems to be going wrong, focus on the things that are good in your life. That are positive. And just so much good comes from that. So, yeah. Grateful.
So today, we’ve got a really exciting topic. Today’s topic is how do I rehab a property for max profit? And we’re fortunate enough here to have a resident designer across the table from me, Andrea is an interior designer, she’s also a realtor, and she — in our business — she heads up working with our contractors, and basically deciding what happens with each house.
What are we going to do to it? How are we going to rehab it? What things are going to change, what aren’t?
Based on trying to maximize the profit, because this is a business that we’re running. So, she’s really good at that. Andrea’s got a lot of interior design training, she’s got a lot of experience in that field, she’s always been super creative, and has a great eye for design and what people like, and what people are looking for. And our house gets to benefit from that, thank you. [laughs]
Andrea: [laughs]
Doug: So we’re really excited to let her take the reins on this episode today, and go into rehab zen, and how we do it and what we look for, and some good tips for doing this for maximum profit. So, Andrea, take it away.
Andrea: First of all, thanks babe. [chuckles]
Doug: You’re welcome. [chuckles]
Andrea: I appreciate it. Okay so, I think that the most important thing in fixing a house for max profit is that your house has to be as good or better than your comps’. Everything else I’m going to tell you from this point on is all relative based on this one’s point. Your house has got to be as good or better than the comps’.
So, if all the comps in the neighborhood have dirt backyards, then you probably don’t need to go put in an expensive sprinkler system and sod. You could probably get away with having dirt too, and save some money there. If all of the houses that you’re comparing to have granite counters and stainless steel appliances, and a custom backsplash, well, guess what? You gotta have those things, too.
Doug: How would I know what my comps have?
Andrea: Get on RedFin or the MLS, whatever you have access to, and scroll through their pictures, basically. You just gotta look. And don’t take the realtors’ description for it. It might say, “awesomely rehabbed house”, no, look through their pictures, because maybe it was not awesomely rehabbed. And so you don’t have to do as much, just be better than what that other person did.
Doug: A lot of realtors are very good at using words like “cozy”. [laughs]
Andrea: [laughs]
Doug: To describe a really small house. Things like that. So yeah, don’t take all the wording. Okay.
Andrea: Okay so then yeah, my next tip is: fix what’s broken. Don’t try to hide things, it’s going to come out on an inspection. And it’s kind of a given. You need to fix what’s broken. If the air conditioning doesn’t work, you need to fix it. You want to have a good name in this business, you want to sell somebody a good product, so first and foremost, fix everything that’s broken.
Doug: And it’s just going to cause you a headache later if you don’t. Because it’s going to come back, people are going to be upset…
Andrea: It’ll stall the escrow process.
Doug: Yeah. So very good tip. Those things that are essential in the house that are broken, gotta be fixed, even if they’re not aesthetic things that you see… need to be repaired.
Andrea: Right. Okay so next, you need to solve any problems that the house might have. So what I mean by that is, if the house feels closed-in, you need to make it look and feel more open.
People want that open-concept house nowadays, and a lot of homes that were built a long time ago, everything is sectioned off in these small little compartments, so if you can go in and find ways of opening up walls, painting things a lighter color, lighter flooring, whatever you have to do visually to make the house feel more open, that will benefit you — in my opinion, it’s a problem for the house to feel small and closed-off, so that’s a problem you need to solve.
Doug: Yeah this is huge, because openness is so important. Today everybody wants an open floor plan, open house, that feels bigger, and if you go to the projects section of our website, you can actually see some of the before and after slideshows of a lot of our homes that we do, and you’ll notice if you look in there, some of the floor plans have dramatically opened up, and the rooms look bigger in the after pictures, because, you’re very good at this. Taking walls down that aren’t necessary there, and…
Andrea: Well thanks babe. Another problem that you might need to solve is functional obsolescence. And this is something that an appraiser can actually take away value for if a house is functionally obsolete. So what I mean by that is, if you have to walk through a bedroom to get into another bedroom, that is functional obsolescence.
We had a house recently that we had this situation on in Redlands, it was a tiny little house, it had only two bedrooms, but you had to walk through one of the bedrooms to get to the other bedroom. Who wants to live like that? It’s just weird. [laughs]
Doug: [laughs] Yeah.
Andrea: So we were able to restructure the house, and make the living room in the middle separate the two bedrooms, you’ve got to get a little bit creative, but that is definitely a problem, and you need to solve it.
Doug: Especially in older homes, that’s a pretty common problem.
Andrea: Yeah.
Doug: You’ll have that a lot, you’ll have to walk through a kitchen to get to another bedroom, or vice-versa like you said. So if you can solve that, that’s a huge win for your property.
Andrea: Another problem that we often have to solve is that in the 1950s, they put the laundry hookups in the kitchen, so that the housewife I guess could be all —
Doug: Hey, you could be doing all of it, right?
Andrea: — doing everything at once, yeah. Well nowadays, nobody wants their laundry room in their kitchen. They don’t want to look at their washer and dryer while they’re cooking, they want their kitchen to be visually pretty.
That’s kind of what’s important to people these days. So we always look for a way to move that out of there, if at all possible. We’ll at least put it in the garage if we can’t put it somewhere else in the house.
Okay, so my next tip is, keep it neutral. You cannot get personally attached to a flip property. I think a lot of new–
Doug: But I like hot pink!
Andrea: [laughs
Doug: [laughs]
Andrea: I think a lot of new investors make this mistake and get really hung up, especially if they’re doing the work themselves, is thinking about the house the way that they would want it to be. And you really cannot do that. It’s not financially a benefit to you to do that, you’ll end up probably spending more money. You need to just keep it neutral.
Doug: Unless your style is totally neutral. [laughs]
Andrea: [laughs] I guess that would be the exception.
Doug: [simultaneously] Vanilla.
Andrea: So you may love red, but not everybody may love red, so you want to stick to tans, and gray color palettes. Light gray is really big right now.
Doug: Yeah, earth tones…
Andrea: Yeah. Well the “greige” [phoenetic: “GRAY-je”] sort of tan-gray…
Doug: “Greige”. [chuckles] Did you make that up? I like that.
Andrea: No I didn’t.
Doug: Oh okay.
Andrea: I wish I could take credit for it, but no, not me.
Doug: “Greige.”
Andrea: Yeah, tan or gray, people really like those gray color palettes these days, so I’d say keep it neutral. And don’t overlook the small things. And by small things, I mean mostly flooring and paint. We pretty much, even on a simplest fix, we always do paint and flooring. Because that makes the whole house feel fresh and new.
Doug: Yeah, absolutely.
Andrea: Just because the walls aren’t scratched up, or they’re not too dirty–
Doug: Right.
Andrea: — They need to be fresh.
Doug: Maybe that tile flooring is thirty years old, but it’s in great condition… doesn’t mean you want to keep that tile floor. Unfortunately.
Andrea: That’s just not what people want these days, and you want your house to be the one that sells the quickest, so that you’re not having all of your carrying costs… so just do it right in the first place.
Doug: Yeah, when people ask me, “what’s the biggest return I can get?” or bang for your buck in terms of rehab, I’ve always told them as an appraiser, “carpet and paint”. Or, “flooring and paint”.
Andrea: Mm-hmm.
Doug: It’s going to return you back more than just about anything else, in my opinion.
Andrea: I would say that the five main areas of a house that you want to pay attention to are the kitchen, the bathroom, paint and flooring, and curb appeal.
Doug: Definitely. Definitely. Yeah, kitchens and bathrooms on the interior of the home are the rooms that people would look at when they’re going to see if a home has been quote-unquote “upgraded”. And that’s the sizzle.
Andrea: So if you have it in your budget to upgrade anything beyond the paint and the flooring, you want to put your money in your kitchen, and in the bathroom. A lot of times if we don’t have it in our budget to do new cabinets, we’ll paint the cabinets white, the ones that are already there, and we’ll add some new hardware on them. They almost look new.
Doug: Yeah, they can almost feel like new — yeah, exactly, almost feel like new cabinets. We do that a lot in the homes where the cabinets read their condition.
Andrea: And if a kitchen is smaller, painting the cabinets white makes it feel so much bigger and brighter, and just like a cheerful space.
Doug: Right. Definitely.
Andrea: Same thing with bathrooms. If we can’t afford to replace the vanity, we might paint it, so that it feels fresh.
Doug: Yeah, paint it… a lot of times, you’ll have maybe some tile in the shower wall that is in good condition, you can just re-glaze it, or– it’s almost like a paint, but it’s a shower grade paint that is waterproof, and you re-glaze it white, and maybe just– what we do a lot of times is, what, we change out a whole strip?
Andrea: Yeah, we’ll just pop out a whole band strip, of the existing tile. We’ll glaze the rest white, and then put in a new band strip of glass tile or something decorative.
Doug: Makes the whole thing feel new.
Andrea: [simultaneously] It looks brand new.
Doug: Yeah, if you’re on a budget, then that’s a really good way to do it in the bathroom.
Andrea: And then, curb appeal, that’s kind of self-explanatory; don’t break your budget on the curb appeal, but if you have it in your budget to do new exterior paint, that’s awesome, if you don’t, a lot of times, we’ll just paint the trim — sometimes just painting the trim white, or adding some shutters, makes the whole house feel like a new property.
Doug: Yeah. And again, knowing what your competition is on this as well. So if everybody’s got dirt front yards, depending on your area, it may not be that important that you go completely fully landscape the entire yard of the house, but in most cases at least having a little green grass…
Andrea: Mm-hmm. Oh absolutely. And you want to add the bare minimum, you want it to be clean, cleaned up.
Doug: Clean, yeah.
Andrea: Maybe a few little plants in the planter but you don’t have to go crazy, it doesn’t have to be like HGTV where they do this whole big amazing landscape– you don’t have to do that, it can be minimal, as long as it’s clean and fresh-looking.
Okay so my next tip is on staging. Some people choose to stage their properties, some people choose not to, obviously it’s always a benefit if you do it, but sometimes it’s not in your budget.
We generally don’t pay a stager to go in and do a full staging, unless it’s a very expensive property like this one we talked about, the mid-century modern, we paid a professional stager to go in and do that.
Doug: Full staging can run five, ten, fifteen thousand dollars depending on what you do.
Andrea: Yeah. And absolutely, they do a beautiful job, they make the house look so great, but that’s not always in your budget. Most of the time I would say it’s not in your budget, you don’t want to spend your profit, really, on that.
Doug: Depends on the house, depends on the price range of the property, but yeah, for the most — go ahead.
Andrea: Yeah. So what I like to do is something I call basically a semi-staging. So I have– just because I love this stuff–
Doug: [chuckles]
Andrea: — a garage filled with staging supplies —
Doug: Oh, you love it. [laughs]
Andrea: [laughs] So I’ll basically just stage the kitchen, bathrooms, and the fireplace mantle and hearth if it has one. So nothing major, nothing over the top. I’ll put a bowl of lemons and some plants and some different things like that, maybe some plates in the kitchen, just to add some color, and to make it feel homey to a person, to help them visualize themselves living there.
Same thing in the bathroom, I’ll put out a pretty soap dispenser and a flower on the vanity, and a picture and a towel, and just that is enough to bring a little bit of life to the bathroom. You can do a very beautiful job of tile and flooring and all of that, but those little bit of staging items really does bring life to those rooms. I feel like it adds a lot. You don’t have to do it, but—
Doug: Yeah, psychologically, it does something to the buyer.
Andrea: Yeah.
Doug: If you ever walk through those model homes, and it’s completely laid out, I don’t know, psychologically you feel like, “oh, I’m at home here, this is comfortable to me.”
Andrea: Yeah, it helps a potential buyer envision themselves living there. And that’s kind of your goal. And really, any little thing you can do to help your house be the one that sells first, if you have maybe five other houses that you’re competing with, that are all active, you just want to set yourself up for success, and do whatever you can do to make your house sell first.
Doug: Yeah, again, it comes back to being as good or better than your competition that’s out there, and this is all part of it.
Andrea: Yeah. Mm-hmm. So then okay, my last point is that you need to find what works for you, and stick with it. Now, as an interior designer, this absolutely kills me to say, I hate it, but it’s true. From a business perspective, it does not benefit you to be running all over town hunting down specialty tiles and specific granite slabs that are just perfect, you are running a business, and you need to have systems in place, and you need to be able to replicate and–
Doug: Scale. Yeah.
Andrea: Yes. And so in order to do that, you might find a couple of color schemes that work for you. Let’s say, if we do white cabinets, then we do this color granite, we do this color backsplash, we do this flooring. If we do dark cabinets, then we’re going to do this color backsplash, this color granite, and this color flooring.
Maybe you have two set-ups, maybe — we usually have probably four. And I can tell my contractor, okay, we’re going to go with this one, we’re going to go with that one, and he knows exactly what it is. And we’ll talk about that here in a minute, how we work with a contractor on all of this.
But you really need to find a couple of things and stick with them. And then I would say, go in every couple of years and revise that.
Doug: Just update it.
Andrea: Yeah, it needs to be updated so that — you know, we don’t use the same granite that we used three years ago, because it’s kind of outdated. Now we use actually a lot of quartz. So, you’ve gotta stay fresh with it, but don’t waste your time on every single house, especially for just those average neighborhood homes.
Doug: Yeah I was going to say, this is obviously going to depend on what type of homes you’re rehabbing. If you are in a completely custom area that demands this type of attention, which we occasionally will do a house like that, like a mid-century modern home, or something that–
Andrea: Yeah, we did one actually recently, out in the desert that was a mid-century modern and it had to be spot-on mid-century modern. So I went out and chose everything…
Doug: [simultaneously] Yeah, very particular details for the, yeah, finishes in there.
Andrea: Mm-hmm. And we had another one in San Diego that was kind of an up and coming neighborhood, a little bit higher price point, we knew it was very much like a hipster, trendy neighborhood, and so we tried to appeal to who the buyer was going to be for that specific property, so we went outside of our typical four system plan and we had it totally custom and awesome.
We’re doing another one that’s a historical one, obviously, you’ve got to go within the boundaries of the Historical Society, and that one’s going to be totally custom too.
Doug: Yeah.
Andrea: But for your regular, average neighborhoods, if you can have a couple different specific plans that you use, and you can just tell your contractor, A, B, C, it’ll make everybody’s life so much easier.
Doug: It’s going to save you so many headaches and so much time, if you do it that way and systemize it.
Andrea: Yeah.
Doug: Yeah.
Andrea: So…
Doug: You mentioned working with your contractor, we have a special way do that, great tools, go ahead and talk about that.
Andrea: The tool that we use, and I’ll have Doug explain it actually because he set it up, but we use something called Podio, and this makes our life–
Doug: Love Podio. [chuckles]
Andrea: — so simple. In so many ways. But within Podio, there are so many things you can do. We’ll probably have a future episode that is all about Podio. But within Podio, we have a separate category for working with our contractor. So go ahead, Doug, tell us how you set that up.
Doug: Yeah so Podio is — it’s just a contact relations management, so it’s an online software that we use to systemize and manage our entire business operation. It’s very customizable, and it’s easy.
I’m not a techie by any means, but I’ve fallen in love with Podio, because you can customize it to whatever it is your needs are. So, we have a specific workspace within Podio just for our contractor and for Andrea.
And to make it quick, basically we’ll just set up specific projects in there, like, “Elm Street House” for example, and Andrea can just click and drop all these different items that she has saved that we talked about before like, a cabinet color, a countertop type, a backsplash tile, a wall color, and maybe a roof shingle, things that we use in succession with each other, and in a matter of a few seconds, click and drop those into that project, so that the contractor, who has access to that as well, can see exactly what she’s chosen…
Andrea: I’ve got the SKW numbers, everything’s in there. Every item I’ve already put in.
Doug: [simultaneously] It’s already been pre-uploaded. Yeah.
Andrea: Yeah I only have to put it in once, and then I can use those every time.
Doug: Yeah, so there’s different ways, we used to just send an e-mail every time and it would be custom– we’d have to re-write it every time, I’d like this, I’d like this, I’d like this, and then the e-mails get lost amongst a thousand other e-mails, and it’s hard to keep track of what you even said you wanted for that house.
This is a really good way to keep each other accountable, the contractor can make comments on it, he can upload photos after it’s done, put it in there immediately from his phone…
Andrea: I can upload photos to show, look, this is the tile that I want, but this is how I want it laid out. And so within our Podio workspace, he is assigned – our contractor is assigned specific tasks, so he goes in there and checks off when demolition’s been complete. And then I’ll get a notification, okay, demo’s been done. And then, the kitchen’s complete. I’ll get a notification of that.
So it gives me these progress reports as we go along, so I know what status should be of each property, and it saves me the time of always having to drive around and check on things. He’s constantly giving me updates of what’s going on. So invaluable.
Doug: Yeah. Great tool. Great tool.
Andrea: So that’s pretty much it for today. To recap what we talked about, what Doug just said, make sure that your house is fixed as good or better than your comps’. Fix what’s broken, solve the problems, keep it neutral — remember those five main areas of the house, the kitchen, the bathroom, paint, flooring, curb appeal, stage if it’s in your budget, or you can do it yourself, a little DIY staging goes a long way, and find what works for you, and stick with it.
Get your couple color scheme plans, and stick with those for a period of time until you decide to revamp it. It’ll save you time, it’ll save your contractor time, and your houses will look great because you know that those are proven color combos that you’ve already used, and it works for you.
Doug: Okay that’s it for today. Thank you so much for joining us, I hope you got a lot of great information out of today’s topic. We want to encourage you to head to our website: spousesflippinghouses.com. Go check it out. Big picture of Andrea and I in the front of it. [laughs].
Andrea: [laughs]
Doug: Little too big, maybe. [laughs]
Andrea: Yikes. [laughs]
Doug: Got two great free gifts for you there. One is an e-book, “Eleven Tips to Successfully Working with Your Spouse”, one of those tips which we talked about at the beginning of the episode and there’s great information there.
The other gift is a video course that I put together on how to analyze a deal in today’s market. Packed full of good information, I think you’ll get a lot of value out of it, and we just encourage you to connect with us on our website.
Andrea: Also we would really appreciate it if you would head over to iTunes and leave us a rating and review. That would be awesome. We would really appreciate it. You can also — if you have any questions, if there’s anything that you would love to hear us talk about, head over to our website, or you can e-mail us, and shoot us your questions, we would love to get to know you.
Doug: Looking forward to connecting with you. Thanks again for listening.
Andrea: Have a good week.
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