How to Maintain Equity Throughout a Home Renovation

Greg: Welcome to this edition of the luxury homes podcast series, brought to you by John Mand, and Jake Tidmore, both with Lenahan Sotheby’s International Realty. Today we have Jake in the studio. Jake, good to see you. How are you?

Jake: Doing well, Greg. Thanks for having me.

Finding Opportunity For Buyers

Greg: My pleasure. I wanted to talk about home renovation today, and how that works into people’s mindset when they’re buying a home, and how an agent can be of value, if they are. I’m hoping you’re the man to talk to.

Jake: Yeah. Absolutely, Greg. I think it varies with buyers, depending on what they’re looking for. I think, especially after the recession, folks are looking for value. Our role as a Realtor has changed slightly. I take pride in searching, and finding value in property, and finding opportunity for buyers to come in, do some work. Maybe it’s just light cosmetic, maybe it’s full rehabs, where they can find a property, customize the property, and have equity there.

Greg: Are you trying to think ahead of what your clients might want? Or, you’re talking to them about what they really do want, and you need to find the home that doesn’t have exactly … Do you work it backwards like this to find out what’s missing, but has potential? Is that what you’re trying to do?

Location, Price, Then Project Level

Jake: Right. I think it depends. It depends on the buyer. It depends on what their goal is. Really, across the board, I think the most important thing is the finding location that the buyer is going to be comfortable with. Then, finding the right price point. Then also, not giving them a project that is going to be over their heads. Where they come in … There may be value there on the front end, but then understanding your client, understanding what they’re capable of, giving them a project that they can add value to, and not get upside down. It’s easy to do. There’s finding value, but you can get in over your head pretty quickly.

Greg: You mean by spending too much on new kitchens, or bathrooms, or something when you buy a house? Is that what you’re talking about?

Jake: Exactly. Yeah. I think it depends. It depends on the investor, or the buyer. If it’s somebody that’s been around the block, it’s not a rookie investor, then you give them a little bit more. There’s a little more opportunity there to add value, and a large rehab is not going to scare them off. For maybe a first time home buyer, who is just nervous given what happened during the recession, and they’re just looking to clean up a house, do some cosmetics, but want to be on the right side of things when it comes time to sell the property, then it’s more important about finding them the right property where they can maybe do kitchen cabinets, counter tops, floors; not get too invasive, not change the structure of the house, something they can handle.

Related Article: Creating Value Through Home Renovations

Greg: Okay. If we’re talking more about single family residential sales, and not so much about investment properties, and my guess is that you would look very differently depending on what kind of client you have. If we’re talking about just one home at a time kind of deal, in your mind, what’s a Realtor’s role in helping that client, after they close on the house, how do you help going forward? Is there a role for a Realtor if they want some work to do?

Jake: Yeah. I think initially the role is obviously to find them the right property. Then, a lot of times the financing can be tricky on properties. If it’s cash, obviously that makes things easier. A lot of times folks take advantage of the relationships we have with lenders in town. Going about finding the right financing, whether it’s a construction loan, or whatever it is, obviously at that point, once they close on the property, we find them the right house, we close on it. It’s about being there for those folks. If the buyers who’s living in the property for a couple of years, or however long, and then is going to sell it at some point, then I think that role diminishes slightly.

I think it’s helpful to be there for them in terms of offering up subcontractors, and coming in throughout the process, and helping them decide what’s actually adding value. If they’re overdoing it. If they’re doing too much that they’re not going to get the value back out. I think the role changes depending on who it is. If it’s going to be a three or four month project or less, and they’re going to re-list the property immediately for a profit, then we’re a lot more involved. In my experience, I will go to the property one, two times a week to check on subcontractors, to check to make sure the finishes are right, to check to make sure the layout’s right, to make sure he or she is going to get top dollar on the resale.

Greg: Even after you’ve closed on the house, someone’s using your expertise, your years in the market to know what state the market is currently in. What is selling. A lot of people like to spend a lot of money in kitchens, right?

Jake: Right.

With Home Renovation You Can Overspend In A Hurry

Greg: You can overspend, like you said, in a hurry.

Jake: Absolutely.

Greg: Part of your expertise is to say, “Are you going to live here ten years? Then, knock yourself out, put in the kitchen that you want. If you’re going to flip this in … “, like you were saying, “… a couple of months … ” is that what you’re talking about? Your role as a real estate agent after it’s closed? It breaks up into two parts, right? How do I help someone before it closes, and then if they’re doing a renovation, is that a separate function for you?

Jake: To a certain extent. Throughout the process, we develop relationships with these folks, and become friends. I’ll get calls all the time, whether it’s right after they close, or six months after they close, asking me questions about where they are in the rehab, what needs to be done. A lot of times if it’s an owner-occupant, I will pull comps before, obviously, they purchased the property, and then during the renovation, to show them what has happened in the area. What finishes people are going with.

It’s especially helpful to find other property in the area that has sold at a value where an investor, maybe a very savvy investor has come in, and bought the property, and to see the kind of finishes, and the kind of money they’re spending on the property to kind of give the owner-occupant a benchmark on what they can do ideally, optimally, to get the best return when it’s time to sell, whether that’s in two years, five years, ten years. Obviously, there’s a little less pressure to get it right if you’re going to sell in ten years, but regardless, you still want to get the most value for your property as you can.

Greg: Always. Yes. Right. I have a question. I’m kind of curious. I hope I’m not getting too personal, or anything, but after … I think most people know how real estate works. After the closing, real estate agents, Realtors get paid.

Jake: Correct.

Years Of Developing Our Expertise

Greg: When people call you up, and ask for advice, and you use your expertise, and your years, and years in the business, how does that fit into your business plan, I guess? You’re not getting paid for that.

Jake: Right. That’s real estate. Ultimately, it’s about building relationships, having that expertise, so that people do call you, regardless of whether you get paid on it initially or not. We pride ourselves on being valuable. We’re not just in this to write contracts and pick up commission checks. It goes deeper than that. We’ve been doing this, Jon and I, collectively, for over twenty years now. It’s taken a long time to identify properties. To be able to find value, to know areas, to develop relationships with lenders, to develop relationships with subcontractor, and contractors, and builders. When somebody asks me for a lender, that goes back years of developing relationships, and finding which lenders; who they need for specifically what they need. Whether they’re building a house, or buying a piece of land, or doing a rehab, or buying retail. It saves people a lot of time from having to call the lender, and banks, and lender, to figure out who’s going to be best for what they’re looking for. A lot of this, when you’re getting calls, and people are asking questions, for the most part, a lot of these things we don’t get paid for.

Now, on the flip side, if you’re working with investors, and they are looking to list the property, we really try to harp on relationships. Building strong relationships with investors, because as you said, Greg, we don’t get paid finding somebody one hundred, one hundred fifty thousand dollar property that’s got a one hundred, one hundred fifty thousand dollar margin after a seventy-five thousand dollar rehab, we’re not making a ton of money by selling them that one hundred fifty thousand dollar house. There needs to be a strong relationship to where we know we’re not doing all this leg work, and finding them a property with the kind of margins that we’re finding. Putting them on the property, they did the rehab, and then find the next broker in town who will sell the property at a lower commission, or a cut. We want to make sure that folks know our value, recognize our value, and see that value, so that when it does come time to sell, when they’ve got the three hundred and fifty, or the six hundred thousand, or the two million dollar property, we’re getting the listing.

That’s what makes all the time, and value added worth it at the end. We’re not getting paid necessarily throughout the middle of the process. We find the house, we sell it, we make a little bit. Then, throughout that time period from when they buy, and they’re rehabbing the property, we’re involved quite a bit, and that’s not necessarily time that we’re getting paid for. Ultimately the goal is to get the listing at the end, and then sell that property.

Greg: During that time, you’re actually earning the listing, right?

Jake: Exactly.

Greg: You’re earning, and you’re demonstrating the value added. I’ve always thought it was funny when people say, “Oh, you got that listing”. It’s like, “Well, I’ve been working on it for a year and a half”.

Jake: Right.

Greg: Or, “I earned the trust and the commitment from the client”. That sounds exactly like what you’re saying. There’s a lot of time, and effort spent providing value.

Jake: Exactly.

Greg: Thanks so much for coming in today, and talking about … I guess we talked about a lot of stuff. Rehab, and remodel, and purchasing, and value add. I look forward to the next episode.

​​​​​​​Jake: Yeah. Absolutely. Thank you, Greg. Thanks for having me.