Trauma_of_remodeling_a_home
00:00:00.000 | Hello, everybody. It's Sam and Sydney from the Financial Samurai podcast.
00:00:03.600 | And in this episode, I want to talk about the trauma of remodeling a home.
00:00:09.400 | Because we discussed in a previous episode some of the wins
00:00:12.500 | and some of the regrets we had since the pandemic began.
00:00:16.800 | And a reader pointed out a huge win they had during the pandemic,
00:00:21.800 | which was buying a fixer and then remodeling it during the entire time.
00:00:26.500 | And this is something that we also did.
00:00:30.400 | We bought a fixer in 2019.
00:00:32.600 | We finished stage one, which was remodeling a kitchen and three bathrooms.
00:00:36.100 | In 2019, we lived in it for like 10 months.
00:00:40.300 | And we started phase two, which was blowing out the ground floor,
00:00:43.900 | trying to add in 300 more square footage,
00:00:48.100 | bedroom, living room, laundry room, hallway, closet, and rewiring.
00:00:53.600 | And it was a big project.
00:00:55.500 | And ultimately, because it took longer than expected,
00:00:59.800 | I thought it was going to take, I don't know, four to six months, right?
00:01:04.300 | But four to six months in, it was like only 10% of the way done, it seemed like.
00:01:10.500 | And then there was a stalling out.
00:01:12.600 | And so ultimately, the project took two and a half years to complete.
00:01:18.300 | It started at the beginning of 2020.
00:01:20.100 | And I remember we got our final, final permit
00:01:23.300 | for the downstairs demo and rebuild, as well as the deck,
00:01:27.700 | something like August 8, 2022.
00:01:30.600 | Something like that, yeah.
00:01:32.000 | So after doing a huge remodel that took two and a half years,
00:01:36.200 | it cost, I think, something like $130,000, $40,000.
00:01:40.200 | It took a lot of time dealing with our contractor,
00:01:43.900 | who disappeared for multiple times, multiple months on end,
00:01:48.300 | failing some permits, such as one of the building or plumbing
00:01:51.200 | or electrical permits, cost overruns, all that.
00:01:55.800 | I completely wiped it from my memory.
00:01:58.300 | Yeah.
00:01:59.100 | When I spent hours putting together the post,
00:02:02.500 | the pandemic was an experience in hedging your life.
00:02:05.400 | So this tells me that remodeling is very stressful, is very traumatic.
00:02:12.700 | And I wiped it out of my mind because I didn't
00:02:14.800 | want to think about it anymore.
00:02:16.500 | I remember finishing.
00:02:18.100 | I felt really proud that I got through this gauntlet of pain.
00:02:23.000 | But then I swore that I would never do a gut remodel again.
00:02:27.000 | I don't know if I would ever even do a simple bathroom remodel again.
00:02:30.200 | Do you remember that time?
00:02:31.700 | Yes, I remember.
00:02:33.500 | I was very fortunate that you shouldered pretty much 99.9%
00:02:39.700 | of the load of that remodel.
00:02:41.900 | So I wasn't too involved.
00:02:43.500 | But oh my gosh, it was a lot of stress for you.
00:02:45.700 | And it was just so painful because our contractor was so MIA.
00:02:50.500 | So the communication and just feeling so many unknowns, I think,
00:02:54.900 | was one of the biggest aspects of the stress for you.
00:02:59.200 | Yeah, he would never give us a clear idea of how much it would cost.
00:03:03.400 | Costs and then what was going on with the permits,
00:03:06.100 | what was going on with the supplies.
00:03:09.700 | It was just endless unknowns.
00:03:12.100 | It was basically because people had to continuously rely on other people.
00:03:17.100 | And if one chain breaks or becomes undependable,
00:03:20.700 | then it's all screwed up.
00:03:23.300 | And I think it's especially frustrating for some people who remodel
00:03:26.800 | complicated projects.
00:03:28.500 | But ours wasn't that complicated.
00:03:29.700 | It was within the envelope of the home.
00:03:32.200 | Because you have to deal with the Department of Building Inspection,
00:03:35.400 | which over the pandemic period has shown multiple stances of corruption in San Francisco.
00:03:41.400 | So much. It's crazy.
00:03:43.000 | So much corruption.
00:03:44.200 | I mean, we've got like, you can get an expediter
00:03:46.600 | who's supposed to know the system better.
00:03:48.500 | You just pay them more.
00:03:49.700 | And gee, where does some of that money go?
00:03:51.300 | Maybe to pay one of the inspectors or people who's approving the plans.
00:03:57.600 | I mean, this has happened over and over again for years.
00:04:00.500 | Scandals. Countless candles in the DBI.
00:04:03.000 | Scandals. Yeah.
00:04:03.600 | So it's one thing, right, if the city...
00:04:08.000 | You know, okay, one time I got a notice that said we had to remove our planter boxes
00:04:13.600 | because they were too high and they were on the public right-of-way.
00:04:18.600 | And I had no idea what that was.
00:04:20.300 | Now, I put planter boxes in front of our house on our property.
00:04:25.200 | But the city said, "If you don't remove these planter boxes within 30 days,
00:04:28.800 | we're going to fine you because the public has the right-of-way to step on your property."
00:04:33.600 | Yeah, it's the dumbest rule.
00:04:34.800 | So I was like, "Are you kidding me? 30 days?
00:04:37.700 | Just give me at least 60 days because, you know, it costs thousands of dollars to build and remove
00:04:41.500 | and you're crushing the aesthetics of the home and neighborhood."
00:04:44.800 | So they said, "Fine. 60 days."
00:04:46.500 | At the same time, the reason why they came out was because I think a neighbor complained
00:04:50.200 | that one of the sidewalks was buckling because of the tree roots.
00:04:53.900 | Now, that's kind of common.
00:04:55.700 | And I think several years ago, there was a law that passed that said
00:04:59.500 | the city was going to take care of all the sidewalks due to, you know, tree roots and so forth.
00:05:06.000 | But that was a year ago.
00:05:07.200 | So why does the city impose a 30-day deadline and then fine us if we don't meet that deadline,
00:05:14.800 | yet they can take a year or more?
00:05:17.300 | It reminds me of when we were living in a different house.
00:05:19.600 | There was a pothole in the middle of a busy intersection that we could hear because it was loose.
00:05:25.200 | And we called and called and called and filed so many, like, tickets to get that thing fixed.
00:05:31.400 | Yeah. It took a year and a half.
00:05:32.700 | It took a year and a half.
00:05:33.800 | Yeah, it was almost like a... I just put a calendar reminder.
00:05:37.400 | Once a week.
00:05:38.100 | Call in.
00:05:38.900 | Call 311. Call the city.
00:05:40.500 | It was so noisy. It'd wake us up at night. I remember.
00:05:43.000 | Yeah. So that's the thing.
00:05:44.800 | And this is one of the reasons why, oh, man, the government, local government, big government
00:05:50.900 | is often so inefficient, especially compared to private citizens who tend to get things done.
00:05:56.700 | There's this frustration here.
00:05:58.900 | And this frustration will definitely show itself whenever you try to remodel a home.
00:06:06.000 | So for those of you who want to remodel a property or buy a fixer and expand it and all that,
00:06:11.700 | just know that it's stressful as hell.
00:06:14.200 | And I don't recommend you do it unless you're in your 20s or 30s, maybe early 40s.
00:06:19.400 | But after 45, your time is too valuable because you're probably wealthier and you make more money.
00:06:25.800 | And your mental health is more important.
00:06:28.800 | It might be more frail because you've gone through much more of life's ups and downs.
00:06:33.500 | Yeah.
00:06:34.100 | So do it in your 20s and 30s.
00:06:36.100 | Put in that sweat equity because you're earning less.
00:06:37.900 | Your time is less valuable.
00:06:39.600 | You have more time and you're making less money.
00:06:42.000 | And then after 45, it's like, okay, you've gone through like the ringer, the torture.
00:06:48.400 | You appreciate larger remodeled homes.
00:06:53.100 | I think you just buy fully redone homes after that.
00:06:56.900 | Yeah.
00:06:57.600 | So one of the implications of the pain of remodeling, especially since the pandemic began,
00:07:03.200 | is that people like me will not sell our remodeled properties, a rental or primary home, at a discount whatsoever.
00:07:12.200 | We have too much invested in it.
00:07:14.100 | And, you know, selling a home and buying a home is very, very emotional.
00:07:17.100 | So because of that emotion and all that time I spent, there is no way I'm selling my home at a discount.
00:07:22.100 | I'm not selling the property in this market if it's a little bit soft.
00:07:26.900 | Even in a raging bull market, it's like, you got to pay me a big premium.
00:07:31.900 | And I think this type of attitude will multiply across the entire homeowner industry,
00:07:39.400 | and which will result in fully remodeled homes appreciating more.
00:07:45.500 | The gap will—people pay up more.
00:07:48.400 | And for us, for our next home, I am willing to pay a little bit more for a fully redone home
00:07:54.600 | because I went through the experience and know how much it takes to get through the gauntlet.
00:08:00.400 | So I appreciate that more.
00:08:01.600 | Therefore, I'm willing to pay more.
00:08:03.100 | One thing I want to add, a thought that you had recently as well,
00:08:06.800 | is that if we are shopping in the future, you know, hopefully way in the future,
00:08:12.400 | anyway, if it comes time to shop for another house, yes, we want one that's fully redone.
00:08:18.400 | However, we don't want one that was just finished.
00:08:22.200 | And tell the readers why.
00:08:24.100 | Oh, yes. Oh, yes.
00:08:25.200 | So just like buying a new car in the first year of a redesign or remodel,
00:08:32.200 | you shouldn't—I don't think you should buy a home, a brand new home,
00:08:37.600 | unless you have a two-year warranty or longer that covers everything.
00:08:42.800 | Because whenever you redesign something, especially if you do a lot of custom work,
00:08:48.600 | man, there are so many things that can go wrong.
00:08:51.900 | And the more customized you make your home, sometimes the rarer the parts.
00:08:57.200 | And the rarer the parts, the longer the delays and the cost overruns and so forth.
00:09:01.300 | So there can be a lot of things that can go wrong.
00:09:05.300 | So if you buy a home after maybe three terrible winters or terrible summers with tornadoes and all that,
00:09:13.000 | you can kind of get a sense of how well the home holds up.
00:09:18.000 | Because if you buy a brand new home that hasn't been tested by the elements
00:09:21.200 | or, you know, the guts haven't been working long enough, bad things could happen.
00:09:25.400 | Several readers have written in and said, you know, they paid for a brand new home
00:09:30.000 | and it resulted in several leaks, they had to move out, huge cost to fix the homes,
00:09:38.200 | litigation as well, moving out of that home and renting another home.
00:09:41.800 | The thing is, even if you hire the top contractor,
00:09:45.400 | the most expensive architect to create an amazing new home or remodel amazing home,
00:09:51.800 | something always goes wrong.
00:09:53.400 | Because you can have the best from the top,
00:09:55.600 | but who is building it with their hands and knees and fingers?
00:10:00.200 | The people who are not making the top dollar,
00:10:02.800 | they're the subcontractors and then, you know, the workers of the subcontractors, right?
00:10:06.600 | So unless you're completely focused on what they do every single day, you inspect the work,
00:10:12.400 | shortcuts will be made all the time.
00:10:14.800 | I've seen it many, many times.
00:10:16.400 | Like one example, we did a shower and then the worker forgot to put the rubber shower pan.
00:10:23.200 | That's waterproofing.
00:10:24.400 | Some kind of lining.
00:10:25.600 | Yeah, which is totally important.
00:10:27.400 | And thankfully, the inspector came and said, where's the rubber shower pan lining?
00:10:32.600 | Oh, sorry, I forgot.
00:10:34.200 | And then they redid it.
00:10:36.800 | So that's another actually point about remodeling with permits.
00:10:42.200 | It's going to be super painful to remodel with permits,
00:10:45.200 | but they'll protect you from doing crappy work.
00:10:49.800 | So for all y'all who remodeled successfully during the pandemic,
00:10:53.300 | congratulations actually, because we were able to utilize a really crappy time
00:10:58.800 | to increase the value of our homes.
00:11:00.900 | And if you expanded the livable square footage of your home,
00:11:04.300 | that's the way, that's the best way to increase the value of your home.
00:11:07.500 | Because if you can build for lower than the selling price, then you're winning instantly.
00:11:13.400 | For example, I think we spent maybe around 300,
00:11:16.400 | $325 a square foot to build a brand new space,
00:11:20.700 | but the home should sell for about $1,000 a square foot.
00:11:23.600 | So that's instant value creation.
00:11:26.400 | So tell yourself that when you are remodeling,
00:11:29.100 | hopefully when you're expanding,
00:11:30.900 | because that is one of the best ways to help you get through a very difficult time period.
00:11:35.600 | I remember telling myself during the worst time of the remodeling process
00:11:40.000 | to just keep on going, just gut it out.
00:11:43.700 | It's just like writing or building something or starting a podcast or writing a book.
00:11:48.800 | If you can just keep on going, everything will be okay.
00:11:52.600 | During the process, it's terrible.
00:11:54.100 | But now that the process is done, I feel happy that it's done, right?
00:11:58.700 | The return on remodeling starts growing the longer you own your home.
00:12:04.700 | I say this specifically from a remodeled rental property point of view.
00:12:08.500 | If you can remodel the property, expand the space or make it nicer,
00:12:11.800 | you can charge more rent and then you take the annual rent divided by the remodeling cost.
00:12:16.700 | And I would say there's a good chance it could be 10%,
00:12:19.300 | which is the average return of the S&P 500.
00:12:21.800 | So the longer you can hold that remodeled rental property,
00:12:25.300 | the greater the return, the absolute return for sure.
00:12:28.800 | But there's also a point where after about maybe 20 years, 20-25 years,
00:12:33.800 | the remodeled property could start feeling dated.
00:12:37.300 | And that's when you might have to go through the entire remodeling process again.
00:12:42.100 | So yes, remodeling our rental property was a big win for us during the pandemic.
00:12:47.700 | It was another screw you to the pandemic,
00:12:50.100 | just like writing a book was a screw you to the pandemic.
00:12:52.900 | If anybody asked us, what did we do during that time?
00:12:56.300 | But if you plan to remodel with a significant other,
00:12:59.000 | especially, make sure your relationship is strong.
00:13:03.300 | Give each other hall passes.
00:13:05.200 | I forgive you passes, reset buttons,
00:13:08.000 | because the remodeling process will test your patience and also test the relationships of the people who are closest to you.
00:13:15.200 | Thanks so much everyone for listening.
00:13:16.700 | If you enjoyed this podcast, we'd love a positive five-star review.
00:13:20.100 | Please sign up for our free weekly newsletter at FinancialSamurai.com/news.
00:13:24.800 | If remodeling is just not your cup of tea and you want to invest in real estate,
00:13:28.500 | well, then you can look at public REITs or you can invest in private funds
00:13:32.400 | like the ones from Fundrise at FinancialSamurai.com/fundrise.
00:13:38.100 | All right, everyone. We will talk to y'all later.
00:13:40.500 | Bye.