Hello, everybody. It's Sam and Sydney from the Financial Samurai podcast. And in this episode, I want to talk about the trauma of remodeling a home. Because we discussed in a previous episode some of the wins and some of the regrets we had since the pandemic began. And a reader pointed out a huge win they had during the pandemic, which was buying a fixer and then remodeling it during the entire time.

And this is something that we also did. We bought a fixer in 2019. We finished stage one, which was remodeling a kitchen and three bathrooms. In 2019, we lived in it for like 10 months. And we started phase two, which was blowing out the ground floor, trying to add in 300 more square footage, bedroom, living room, laundry room, hallway, closet, and rewiring.

And it was a big project. And ultimately, because it took longer than expected, I thought it was going to take, I don't know, four to six months, right? But four to six months in, it was like only 10% of the way done, it seemed like. And then there was a stalling out.

And so ultimately, the project took two and a half years to complete. It started at the beginning of 2020. And I remember we got our final, final permit for the downstairs demo and rebuild, as well as the deck, something like August 8, 2022. Something like that, yeah. So after doing a huge remodel that took two and a half years, it cost, I think, something like $130,000, $40,000.

It took a lot of time dealing with our contractor, who disappeared for multiple times, multiple months on end, failing some permits, such as one of the building or plumbing or electrical permits, cost overruns, all that. I completely wiped it from my memory. Yeah. When I spent hours putting together the post, the pandemic was an experience in hedging your life.

So this tells me that remodeling is very stressful, is very traumatic. And I wiped it out of my mind because I didn't want to think about it anymore. I remember finishing. I felt really proud that I got through this gauntlet of pain. But then I swore that I would never do a gut remodel again.

I don't know if I would ever even do a simple bathroom remodel again. Do you remember that time? Yes, I remember. I was very fortunate that you shouldered pretty much 99.9% of the load of that remodel. So I wasn't too involved. But oh my gosh, it was a lot of stress for you.

And it was just so painful because our contractor was so MIA. So the communication and just feeling so many unknowns, I think, was one of the biggest aspects of the stress for you. Yeah, he would never give us a clear idea of how much it would cost. Costs and then what was going on with the permits, what was going on with the supplies.

It was just endless unknowns. It was basically because people had to continuously rely on other people. And if one chain breaks or becomes undependable, then it's all screwed up. And I think it's especially frustrating for some people who remodel complicated projects. But ours wasn't that complicated. It was within the envelope of the home.

Because you have to deal with the Department of Building Inspection, which over the pandemic period has shown multiple stances of corruption in San Francisco. So much. It's crazy. So much corruption. I mean, we've got like, you can get an expediter who's supposed to know the system better. You just pay them more.

And gee, where does some of that money go? Maybe to pay one of the inspectors or people who's approving the plans. I mean, this has happened over and over again for years. Scandals. Countless candles in the DBI. Scandals. Yeah. So it's one thing, right, if the city... You know, okay, one time I got a notice that said we had to remove our planter boxes because they were too high and they were on the public right-of-way.

And I had no idea what that was. Now, I put planter boxes in front of our house on our property. But the city said, "If you don't remove these planter boxes within 30 days, we're going to fine you because the public has the right-of-way to step on your property." Yeah, it's the dumbest rule.

So I was like, "Are you kidding me? 30 days? Just give me at least 60 days because, you know, it costs thousands of dollars to build and remove and you're crushing the aesthetics of the home and neighborhood." So they said, "Fine. 60 days." At the same time, the reason why they came out was because I think a neighbor complained that one of the sidewalks was buckling because of the tree roots.

Now, that's kind of common. And I think several years ago, there was a law that passed that said the city was going to take care of all the sidewalks due to, you know, tree roots and so forth. But that was a year ago. So why does the city impose a 30-day deadline and then fine us if we don't meet that deadline, yet they can take a year or more?

It reminds me of when we were living in a different house. There was a pothole in the middle of a busy intersection that we could hear because it was loose. And we called and called and called and filed so many, like, tickets to get that thing fixed. Yeah. It took a year and a half.

It took a year and a half. Yeah, it was almost like a... I just put a calendar reminder. Once a week. Call in. Call 311. Call the city. It was so noisy. It'd wake us up at night. I remember. Yeah. So that's the thing. And this is one of the reasons why, oh, man, the government, local government, big government is often so inefficient, especially compared to private citizens who tend to get things done.

There's this frustration here. And this frustration will definitely show itself whenever you try to remodel a home. So for those of you who want to remodel a property or buy a fixer and expand it and all that, just know that it's stressful as hell. And I don't recommend you do it unless you're in your 20s or 30s, maybe early 40s.

But after 45, your time is too valuable because you're probably wealthier and you make more money. And your mental health is more important. It might be more frail because you've gone through much more of life's ups and downs. Yeah. So do it in your 20s and 30s. Put in that sweat equity because you're earning less.

Your time is less valuable. You have more time and you're making less money. And then after 45, it's like, okay, you've gone through like the ringer, the torture. You appreciate larger remodeled homes. I think you just buy fully redone homes after that. Yeah. So one of the implications of the pain of remodeling, especially since the pandemic began, is that people like me will not sell our remodeled properties, a rental or primary home, at a discount whatsoever.

We have too much invested in it. And, you know, selling a home and buying a home is very, very emotional. So because of that emotion and all that time I spent, there is no way I'm selling my home at a discount. I'm not selling the property in this market if it's a little bit soft.

Even in a raging bull market, it's like, you got to pay me a big premium. And I think this type of attitude will multiply across the entire homeowner industry, and which will result in fully remodeled homes appreciating more. The gap will—people pay up more. And for us, for our next home, I am willing to pay a little bit more for a fully redone home because I went through the experience and know how much it takes to get through the gauntlet.

So I appreciate that more. Therefore, I'm willing to pay more. One thing I want to add, a thought that you had recently as well, is that if we are shopping in the future, you know, hopefully way in the future, anyway, if it comes time to shop for another house, yes, we want one that's fully redone.

However, we don't want one that was just finished. And tell the readers why. Oh, yes. Oh, yes. So just like buying a new car in the first year of a redesign or remodel, you shouldn't—I don't think you should buy a home, a brand new home, unless you have a two-year warranty or longer that covers everything.

Because whenever you redesign something, especially if you do a lot of custom work, man, there are so many things that can go wrong. And the more customized you make your home, sometimes the rarer the parts. And the rarer the parts, the longer the delays and the cost overruns and so forth.

So there can be a lot of things that can go wrong. So if you buy a home after maybe three terrible winters or terrible summers with tornadoes and all that, you can kind of get a sense of how well the home holds up. Because if you buy a brand new home that hasn't been tested by the elements or, you know, the guts haven't been working long enough, bad things could happen.

Several readers have written in and said, you know, they paid for a brand new home and it resulted in several leaks, they had to move out, huge cost to fix the homes, litigation as well, moving out of that home and renting another home. The thing is, even if you hire the top contractor, the most expensive architect to create an amazing new home or remodel amazing home, something always goes wrong.

Because you can have the best from the top, but who is building it with their hands and knees and fingers? The people who are not making the top dollar, they're the subcontractors and then, you know, the workers of the subcontractors, right? So unless you're completely focused on what they do every single day, you inspect the work, shortcuts will be made all the time.

I've seen it many, many times. Like one example, we did a shower and then the worker forgot to put the rubber shower pan. That's waterproofing. Some kind of lining. Yeah, which is totally important. And thankfully, the inspector came and said, where's the rubber shower pan lining? Oh, sorry, I forgot.

And then they redid it. So that's another actually point about remodeling with permits. It's going to be super painful to remodel with permits, but they'll protect you from doing crappy work. So for all y'all who remodeled successfully during the pandemic, congratulations actually, because we were able to utilize a really crappy time to increase the value of our homes.

And if you expanded the livable square footage of your home, that's the way, that's the best way to increase the value of your home. Because if you can build for lower than the selling price, then you're winning instantly. For example, I think we spent maybe around 300, $325 a square foot to build a brand new space, but the home should sell for about $1,000 a square foot.

So that's instant value creation. So tell yourself that when you are remodeling, hopefully when you're expanding, because that is one of the best ways to help you get through a very difficult time period. I remember telling myself during the worst time of the remodeling process to just keep on going, just gut it out.

It's just like writing or building something or starting a podcast or writing a book. If you can just keep on going, everything will be okay. During the process, it's terrible. But now that the process is done, I feel happy that it's done, right? The return on remodeling starts growing the longer you own your home.

I say this specifically from a remodeled rental property point of view. If you can remodel the property, expand the space or make it nicer, you can charge more rent and then you take the annual rent divided by the remodeling cost. And I would say there's a good chance it could be 10%, which is the average return of the S&P 500.

So the longer you can hold that remodeled rental property, the greater the return, the absolute return for sure. But there's also a point where after about maybe 20 years, 20-25 years, the remodeled property could start feeling dated. And that's when you might have to go through the entire remodeling process again.

So yes, remodeling our rental property was a big win for us during the pandemic. It was another screw you to the pandemic, just like writing a book was a screw you to the pandemic. If anybody asked us, what did we do during that time? But if you plan to remodel with a significant other, especially, make sure your relationship is strong.

Give each other hall passes. I forgive you passes, reset buttons, because the remodeling process will test your patience and also test the relationships of the people who are closest to you. Thanks so much everyone for listening. If you enjoyed this podcast, we'd love a positive five-star review. Please sign up for our free weekly newsletter at FinancialSamurai.com/news.

If remodeling is just not your cup of tea and you want to invest in real estate, well, then you can look at public REITs or you can invest in private funds like the ones from Fundrise at FinancialSamurai.com/fundrise. All right, everyone. We will talk to y'all later. Bye.