Don’t Overbuild Your Flip: Smart Renovation Design Tips for Real Estate Investors

Ernest Smith – A.Y.! (00:00)
So we did this renovation of this house. I bought it for like $194,000.

We did about $55,000 worth of renovation, ended up selling it for like $320,000. And we were like, great, you we made over our 20 % return. We did, you know, like $50,000 and profit. And it’s like, woohoo, you know, home run, right? We did everything we did. We did it in like a five month timeline. And it just so happened to be like, I had a deal come across my desk from a wholesaler in the same neighborhood.

Scott Bursey (01:57)
Welcome back to the Real Estate Pros Podcast. I’m your host, Scott Bursey. And today we’re kicking down the doors of opportunity. We have a guest who is the master strategist and absolute genius at seeing the finished product before the first nail is even swung. He’s here to give us the blueprint on maximizing hidden value and minimizing renovation risk. This is the kind of insight that brings the real fuel to your investment portfolio.

Get ready for some high level education because we’re talking to Ernest Smith from Renovation Education. Ernest, welcome to the show.

Ernest Smith – A.Y.! (02:30)
Thank you, Scott, for having me on. It’s a pleasure to be here.

Scott Bursey (02:33)
We’re thrilled to have the architect of opportunity with us. And for our listeners who may not be familiar with your journey, please tell us how did your career begin and what’s your focus now?

Ernest Smith – A.Y.! (02:37)
You

that’s always a fun story. So I’m much like any, know, it started off in the university side and, and, ⁓ not really knowing what you really wanted to go into, but, understood that in my mind that I always wanted to be able to design my own house. And so then I ventured into getting into, ⁓ structure, architecture and design. So I did the, ⁓ design or drafting design engineering in college. And that really gave me kind of a.

an overview of a lot of different engineering fields to go into, mechanical, electrical, structural, architectural, all these. And I really found like I gravitated towards the architectural side. One, because I like houses, I love houses, I love the architecture. then there’s…

obviously so many out there, you know, is so there’s always going to be that opportunity for me to buy a house and, you know, fix it up or whatever. So I was like, you know, I want to understand, you know, the principle behind it, as well as the practical, you know, ⁓ out, you know, using your hands kind of doing it. So.

You know, in early to, well, actually in early 90s, I got into the university and I was like, all right, this works. And then I got out, got into the workforce and actually got into a steel structure company. I did a lot of their AutoCAD designs and everything. So, and that was fun because I’d be up working on the table, doing the designs. And then the guys in the shop would actually be building what I’m making. And so it was real time and like, Hey, Ernie, I got a problem with this. Can you fix this?

And it was great to, you you got to see things get built and erected and then disassembled and then taken to job sites and then all done. So there’s a lot of like personal gratification, instant gratification really that came along with it. But fast forward a little bit, you know, once I got into, you know, moving away from Ohio where I grew up at,

I needed a place to stay. And so it was like, all right, well, let’s go find a house, you know? And so then I got into kind of house hacking. So my first deal I bought when I was 23, my private lenders were the bank of Bert and Ernie. They were my mom and dad. And yes, my mom and dad’s name is Bert and Ernie. So.

But, you know, so they’re the ones that funded my first deal. And so I ended up having that deal for about eight months. I lived in it while I was fixing it up. then and at that time, I had heard the the goal of, you know, do this four or five times and then you could turn around and buy your property, you know, free of cash for, you know, your fifth or sixth property. So I was like, OK, that’s great. That’s, you know, it seems like pretty easy. I can do that. And so that’s kind of what I did. So I was on this journey then.

of essentially house hacking for the next six years. And I think I ended up moving like 11 times. It’s like, it was crazy. And some of them I would go from house to house and then I’d go house to an apartment to the next house. then, you know, and it was very short that way. But that was kind of the stint of getting into the rehab side is that I just did it by the house hacking method. And, ⁓ you know, today I think house hacking, it’s got a little different spin on it where people will rent out a

room and you know that would be kind of part of ⁓ that rental income but I was just I was living in I was living in the fix-up you know it was that kind of scenario too but that’s where I started that was the the fun side to it.

Scott Bursey (05:45)
That’s an incredible trajectory, Ernest. You clearly turned vision into repeatable success. Now let’s shift gears. I want to frame the current market through your lens. What is the single most valuable non-structural upgrade you recommend for a quick, significant ROI?

Ernest Smith – A.Y.! (05:57)
Okay.

Whew. Huh. The quick ROI. I would say the probably in the real estate space would be more towards the wholesaling that a lot of people see today. The fix and flip is, I’d say on minimum, know, like kind of a four to six month timeframe, because you’re talking about by the time you end up.

finding the property, acquiring the property, closing on the property, fixing the, know, renovating the property to marketing and selling it. Like you’re, you know, you can do certain things in order to condense that timeline, but realistically, I mean, just because of the…

number of steps that goes into it and makes it very difficult. Wholesaling would probably, I would say, be the fastest to get the most return on your investment. Meaning that if you’re not afraid to pick up the phone and call the sellers that are, name it, getting to go through a divorce and going through some kind of foreclosure, pre-foreclosure, or have some kind of situation in need, and you can help solve that problem.

you know, in the facet being a wholesaler, then really you’re just kind of pushing paper, right? So now, kind of the same thing is like, I can go get this house under contract. I could turn around and go to my buyer’s list or out to the market and market this. And I might be able to take my timeline and condense it down to maybe a few days to a couple of weeks, you know, as far as getting faster return on the money. You know, and realistically, relatively low in cost, you know, so.

⁓ I mean, I could buy a list of a thousand leads for $100, like 10 cents a lead. And that’s great. And already skipped Trace and all the other things. But now I got to be able to pick up the phone and have the conversation and ask the right questions and get them engaging. So there’s an art that goes behind it as well. And then also the negotiation goes into it. There’s a lot of different moving parts. So not to say that’s the easiest.

But that probably would be the fastest ROI to real estate, in my opinion.

Scott Bursey (08:41)
I love that. And that was an excellent breakdown, Ernest. What common architectural challenge do you feel novice renovators fail to budget for, which always crushes profitability in your mind, Ernest?

Ernest Smith – A.Y.! (08:54)
Cool.

There’s really so many. I was trying to look. So actually I got a set of prints. So what we don’t do as renovations is we don’t work from kind of a final. Let see if I can find one real quick. And this is last second, the, what we, in the fix-it flip, we don’t usually work from the end goal in mind first, right?

Like we’re buying this house, have kind of this rough vision, hey, this is a rough looking house, I could do this stuff to it and.

it’d look great, right? But we don’t ever really work from, you know, the final, like we might see these kinds of things, the blueprints. Well, this helps give you the guides and guides you to what that final product looks like. And, you know, and there’s tons of pages that go along with it. This is, you know, one of the one of the designs kind of deal, right? We do elevation. So now I know what it’s going to look like.

And then I started having all these other layers with the electrical, the plumbing, the mechanical, all these other ones. So now everyone that’s involved in the project understands the drive and where we’re going. Like they’re taking their piece of the puzzle, putting it together and putting it in place. And then on the front cover of that box of the puzzle is what it’s supposed to look like, right? Is the elevation. And so everybody is putting their time and effort and energy into moving that piece into the right spot at the right time.

So when you’re doing new construction, that’s a little it’s a longer process, 208 steps, but in a renovation process there may be 50 steps. But what you’re finding in the renovation is that I have to remove the layers of the onion back far enough to where I expose all of the…

the damage or whatever that’s with this property and then I need to go in and start rebuilding it from there. So I might peel it back to like step number 15 and then I got 35 more to go or I may only have to do a lipstick where I may only have to pull back 10 layers and then go from 40 to 50. So it really depends on what it is that you’re buying. Now I can get better deals at once I have to peel back to the 15 layer.

and go 35 steps, right? Or I can spend more money and have a little bit more of a lipstick renovation to it. And then I’m going to be more, I’m going to be paying more. But then not to say that your profits can’t be equal, but usually, you know, how you end up buying the property is really kind of where you’re setting yourself up for success. And that’s part of the negotiations that you do for either or, you know, because that’s really where you make your money at.

throughout the process, there are also opportunities to make money, but we look at it as more of like saving money, like opportunities. Hey, I’m gonna do this painting, but I’m gonna do mindful gray on the walls. I’m gonna do flat white ceilings. I’m gonna do white trim on the baseboards and everything. Well, we didn’t eliminate the painter, but we eliminated the steps. I’m not doing gray on the walls and flat white ceilings and, you know, semi-gloss white trim with doors and all that.

because now they have to take up the time to tape off and edge cut it and do all this other thing where now I just do alabaster white on my walls, on my ceilings, same sheen. I’ll go through, do a semi-gloss sheen on all the baseboards and trim. And then on my doors, I might still do the alabaster semi-gloss or I might go with like an urbane bronze on the door. Something to give it a little bit of a differential, but it’s very clean.

I don’t have to worry, my guys don’t have to worry about cutting it in as easy or as much and it just reduces the labor cost in that particular product, that line item, and that could save you a couple thousand dollars. So am I putting the thousand dollars into my client’s pocket or my subcontractor’s pocket or am I putting it into mine?

I like mine.

Scott Bursey (12:34)
If I’m hearing you correctly, Ernest, a backup plan is king. Ignoring unexpected, especially foundation or data utility issues is where renovation dreams turn into nightmares.

Ernest Smith – A.Y.! (13:21)
Absolutely. Very easily. mean, very easily you can, especially, you don’t you don’t know what’s lurking behind the walls, right, until you open up the walls. So you don’t know if the electricals, you know, old and ⁓ or knob and tube or someone did a bunch of illegal splices and didn’t do them in boxes and stuff like that. know, you don’t know if there’s termite damage. You know, you don’t know if there’s a bunch of water damage. And that’s the unfortunate part is like you still have to have kind of a contingency.

Scott Bursey (13:22)
Let’s talk opportunity here very easily.

Ernest Smith – A.Y.! (13:47)
But sometimes the contingency may not be enough. So you need to be able to kind of understand, you know, the process and, you know, what to look for. So when we, when I look at my properties, I mean, I’m literally in the foundations looking, I’m literally in the attic looking, because even though I can hire an inspector to go out and do that, it’s good to have a third set of eyes, or a second set of eyes, whichever, to go through and look through things. But there’s also,

For me, there’s some solidarity to understanding what I’m looking at. Like, what my thought is about opening up a wall. Like, I need to figure out where these load points go. Do I need to do some extra cost to increase the footer you know, piers, or is everything adequate? Now, some of that stuff I would need to get a structural engineer involved, but ⁓ in the most part, I can get kind of a rough idea of what it is that I want to do with the property.

where I feel like it’s going to give me the biggest value, the biggest bang for the buck, the biggest wow factor. And that’s really kind of it in a nutshell, but that’s coming from the design side, right? That’s creating the opportunity.

Scott Bursey (14:48)
Absolutely. speaking of which, if you could walk us through earnest beyond standard residential flips, where is the greatest overlooked opportunity in specialty renovation niches today?

Ernest Smith – A.Y.! (15:01)
Good question. I think with any cycle, right, we’re all in these cycles. And even though over the last 14 years or whatever, that cycle’s changed. It’s gotten longer in some where we had a very high bell curve, like in 20, 21, 22, 23, 24, when things kept going up, up, up, up, up, we’re all home.

And we’re all looking at the four corners of our house and finding out all these things that are wrong with it. And we want to make it look better because we’re stuck at home all the time. Right. So we find that there was a lot of opportunities to do a lot of renovations for the retail client. So then you may not be flipping as many houses or maybe, you know, because the deals were getting higher and higher and you didn’t want to get stuck, you know, buying too high.

and while the market’s on its way back down. And so we weren’t real sure when that crest was going to happen. Right. So some of it was as being able to pivot and say, hey, we’re going to still do these fix and flips, but it’s going to take us this type of product that we’re going to find in order for us to know that confidently, whether the market goes up or the market goes down. We’re we’re good. This is our value point. This is what we’re selling at. But in the interim, we also had a lot of those clients that were

Also the, you know, maybe wholesalers or the fix and flippers or whoever, or just regular home clients reaching out and saying, hey, do you guys do a bunch of renovations? I’m looking to upgrade my kitchen. I’m looking to upgrade bathrooms. And so we were peppering in all these other little projects that were, you know, where maybe it would have been a $7,000 project, but we’re getting them for 15, $18,000 projects. But also because we’re learning to upsell them a little bit also on certain things.

And so they created kind of another situation, another opportunity. that was, so that kind of was another arm of the business kind of having that cashflow coming in. And then obviously when it goes to more of a down market where we’re kind of that now, people aren’t doing as much because they’re worried about what’s happening in the economy with war going on, the gas prices going up. mean, it’s hitting us in the pocket. So people are a little bit less, you

optimistic about putting those renovation costs into their house because they really don’t know what’s going on. So they’re just kind of like, you know, feeling it out. And it’ll probably be in my thoughts because we’re in kind of a different cycle, right? When we’re talking about this politics, we’re in a different cycle. So we had a president that did it for four years, sat out of office for four years, and then came back in office. So he didn’t have to learn it all over again. He just had to learn what the

previous president did, what he changed from the first four years, and then he went in his first year and started implementing right out of the bat. Where most presidents, it’s year two, like where we’re in year two, then this stuff starts happening, right? His policies start coming in place, all these other things start happening. So that in itself has changed the bell curve of what we are looking at. you know, one speaker I went and saw, and he kind of talks on this,

He’s like, have you ever played Monopoly? And then there’s the Monopoly board. And then he’s like, you ever played Candyland? Yeah, have you ever played Life? Yeah. You understand those rules, right? Yes. Well, can you play Monopoly with the Candyland rules? No. Can you play Life on the Monopoly board? No. He’s like, the idea of it is you have to understand what game to play and what part of the cycle.

and you have to play by those rules and understand the rules of the game. And as simple as that sounds, I was like, ding, ding, ding. Like there’s certain times that you want to flip. There’s certain times that you want to buy and hold. There’s certain times that you want to, you know, do negotiations and then maybe buy foreclosures or, you know, or pre-foreclosures, you know, so there’s different parts and that’s.

of what we’re seeing right now. What we’re going to start seeing more of is bank foreclosures and things like that happening. And the fact that we’ve had the lowest interest rates that we’ve ever seen in my life, you know, down in the, two, three percent range is unheard of. And so everybody still has a little bit of that mentality. Longer answer, but there’s a lot of in there.

Scott Bursey (19:05)
Absolutely. There it is. And if

I’m hearing you correctly, you’re saying that you need to look beyond the obvious.

Ernest Smith – A.Y.! (19:54)
Yeah, yeah, you need to look, you need to definitely look forward ahead of what’s kind of happening and be mindful, you know, because right now, even though that we’re kind of getting in the lower belly of where we’re at in the economy of stuff, we still haven’t seen the number of foreclosures happen like we had in previous years. So those are going to be starting to happen. We have like multifamily where we’re looking at more of the apartment complexes that they’re in that cycle where they’re

three, five, seven year arm is starting to come due. Their notes are having to get paid. A lot of those multifamily people, they’re trying to exit while their value is not the same as what it was when they bought it, you know, five years ago in 21, 20. You know, so there’s a lot of opportunity on the horizon that you could take advantage of now, but I think even going forward in the next, you know, eight months or so.

I think there’s going to be a lot more opportunities for those that are set up to play the right game in the right time.

Scott Bursey (20:50)
And I’m really curious about this one. What specific trend in material cost or labor shortages currently poses the greatest threat to a predictable renovation timeline in your view, Ernest?

Ernest Smith – A.Y.! (21:03)
⁓ I think the largest, so it’s not really about the materials and stuff these days. think at least for me, I’ve gotten to the point where I go to like primary vendors that are for my cabinets, let’s say. Like even during COVID time when the materials is very, very hard to get, where I was getting 10, 12, 14 week timelines on kitchen cabinets, I found these companies that have an RTA product, a ready to assemble kitchen cabinet.

And I literally was able to go get them the next day, unassembled in the boxes if I wanted to. If I want to go get them assembled by them, it would take me like a week and a half. But that was an upsell. It’s like, do you want to wait 12 to 14 weeks to get your cabinets and then another couple of weeks to get the granite or quartz and all the other things to go into it? Or do you want to get your whole entire kitchen done in that time frame and it’s going to be this cost? And they’re like, yeah, let’s.

Let’s do it. Very easy sell. So we’re talking about products now. So products costs have come down significantly from where they were at before. But there is still a cost. don’t really see much of a shortage right now happening. But obviously what we did have with the tariffs and everything that was kind of happening on the import stuff did get affected, you know, because we had a lot of those products that were coming in from other countries. So that that fluctuated. But

Where I think the biggest hurdle is, is really in the labor force, right? So we’re talking like AI. AI is a big proponent of things right now. We’ve got a lot of people that are fearful of losing their jobs to AI, but AI is not gonna be able to replace the construction. Like, you know, the stick built, someone getting out there with a hammer, nails, you know, guns and whatever else doing the labor. The ⁓ private equity firms are hot and heavy on

electrical, plumbing, mechanical, catastrophic type companies, because they know that those aren’t gonna get replaced by AI, but they have a great opportunity with both a contractual kind of on the commercial side to one-off installs on the residential side. So there’s a lot of good parts of those types of businesses. So we find…

our biggest hang up right now is with our subs. know, getting on their schedules, getting them to adhere to our schedules and our timelines. Doing it within the dollar amounts that we need for our budgets and not, and being able to keep the thumb on the pulse with them to make sure that they’re doing what they’re supposed to be doing, when they’re supposed to be doing it, by the time they’re supposed to be doing it for. So that way we’re not having a nutrition burn on our dollar amounts because

Every day we have something not going on on the job site, cost us three, four, $800 or something, you know, a day, depending on the number of, the amount of your renovation and the amount of the property. So probably the labor at the

Scott Bursey (23:42)
Now this is the question here

that all of our listeners want to know Ernest. And it revolves around your teachings. What is the core principle you teach at renovation education to ensure a project’s design appeals to the widest possible buyer pool?

Ernest Smith – A.Y.! (23:57)
I think kind of I alluded to a little bit at beginning with the paint, right? So you have to look at kind of when I showed a blueprint, I mean, it was rough. So the blueprint where it shows you is what the final product is to look like, right? And you could do this with a renovation as well. But when you look at a house, what is the house made up of? Footers, foundation, all the framing, all of the sheathing, all the roof, the windows, the doors, the…

the electrical, the plumbing, the mechanical. Like they all, every single house has all the same components. The difference of it is, in new construction, I can take the same set of plans and move it from lot A to lot B to lot C, D, E, and I can build the exact same identical house and I can, it’s scalable, it’s a process, I can buy the exact same materials and make the exact same thing all over again. Now.

where it changes is you can have a dozen houses, all the exact same thing. And because you add in people, weather, your mother nature, all these other variables into it, each house is gonna have different needs in five years, in 10 years. Each house is gonna be different. Even though they’re made up of the same components, they’re different. So now you have to understand, hey, I’m going into the renovation. I don’t really have a system.

for some of this stuff because I got to figure out how far back I need to peel this onion back, right? Tying that all in. And so I might go to house number one and the person was phenomenal on keeping, know, doing the upkeep, doing the caulking on the house, doing the upkeeps to the windows and the painting on the inside. And, you know, they didn’t have kids, they didn’t have dogs, they didn’t have all these things, right? And so that house is going to be a lot different, both in cost and the whole time.

than someone else that would be like, they had dogs, they had three dogs, they had cats and peed everywhere. They had kids that beat up the doors and put holes in walls. There’s a different scenario and a way different cost, right? But I’m also gonna negotiate on that a lot differently than I would on the first example. So I think with that in mind, you have the end goal of what the house is to look like.

again or what you want it to look like and again it’s about the process and controlling the variables as much as possible so if i have an electrician coming in being very specific about what it is that is is it a need or is it a want the need is what does the house need well it needs electrical it needs plumbing it needs h vac system updated

It, you know, the wants are I want a soaker tub. I want a four piece bathroom. So I want a soaker tub, a big walk in shower. Well, I’m not living in the house. So, and I’ll tell you a quick story on this. I’ll segue for a minute.

So we did this renovation of this house. I bought it for like $194,000.

We did about $55,000 worth of renovation, ended up selling it for like $320,000. And we were like, great, you we made over our 20 % return. We did, you know, like $50,000 and profit. And it’s like, woohoo, you know, home run, right? We did everything we did. We did it in like a five month timeline. And it just so happened to be like, I had a deal come across my desk from a wholesaler in the same neighborhood.

We’ve already sold the house, moved on from it.

And I was like, hey, I’m gonna go buy the house and see what the people started doing, if they did anything. And literally, I got to the point, I drove past the house. And I was like, did I miss it? Like, what’s going on? So then I turned back around and went back. They tore the house down.

They tore the house down to build a $1.8 million house. So I go back to the needs and the wants. I needed to provide a good livable house because I don’t know who my in-buyer is. And you don’t know who any of your in-buyers are, but you have to give them your best foot forward, your best presentation of the house and show why your house is better than one next door. But in the same size, I don’t want to add my wants to it.

because what I like might not be what Scott likes, might not be what the next person likes. So I wanna kind of appeal to the masses, right? The triangle, I’m trying to appeal to the masses of people that are out there. So in my paint colors, I do the alabaster white on the walls and ceilings. It looks very clean, it’s not stark white like a hospital, like it’s got some flavor to it. I do black matte doorknobs, I do like a different color on the doors, something to kind of give it like a little.

different appeal, but something that someone can very easily see themselves being in it. The spaces feel more open. You know, when I started getting into the grays, gray was a phase, you know, like just like tan was a phase, just like, you know, reds and whatever else are phases, but it allows them ⁓ a clean, canvas to be able to see themselves being in this house. Right. And so as long as this perceived value, I’m not doing that. I I’m not going out and putting a three piece soaker tub in or a

big soaker tub in, I’m not putting a $5,000 toilet in that has a bidet built into it with a seat that automatically raises and lowers. Like I’m not doing that into a normal flip. I’m buying things that look good, functional, but fit within the budget, right? And so I think people start looking at flips as like, well, this is what I want. And they put too many of their needs, their wants into it. And then that automatically just.

catastrophically just increases their cost. All the change orders that happened with the subcontractors, just a lot of things that kind of spiral out and then they’re quick to point the finger and be like, know, that was that subcontractor’s fault. that was that person’s fault. No, it’s your fault. You didn’t have a good plan and you didn’t execute that plan throughout the process and you didn’t stick to…

your design, you didn’t stick to your selections, you didn’t stick to these other things, and you made changes along the way because you didn’t have a thought out plan. And so that’s really the biggest killers of those things.

Scott Bursey (29:37)
Valuable insight right there. Ernest, this conversation has been nothing short of inspiring. And for our listeners who want to follow your journey or perhaps collaborate with you, what’s the best way for them to reach you?

Ernest Smith – A.Y.! (29:49)
Absolutely.

The easiest is across any of the social platforms. It’s at ernestsmithofficial and it’s E-R-N-E-S-T official, ernestsmithofficial You can find that and that’s a…

you know, goes to the web link, the website as well. But yeah, any socials that are out there, the IG, the Facebook, the TikTok, you know, any of those, LinkedIn, can be found the same way.

Scott Bursey (30:13)
Some earnest this has been a master class. Thank you so much for joining us today.

Ernest Smith – A.Y.! (30:18)
Scott, I appreciate the opportunity to come on and share with you guys.

Scott Bursey (30:22)
And to our listeners, we appreciate each and every one of you. If you got value from today’s episode, please subscribe. We have a lineup of exceptional guests, just like Ernest, who are making huge moves in the market. Until next time, keep your standards high and your vision clear. We’ll see you in the next episode, everyone.