The 2026 Value-Add Real Estate Playbook (30% - 50% ROIs)

21:28James Dainard:Bro. Like a pro tip is usually when there's a half bath, like I'd say 60 to 70 % of the time, there's a closet somewhere close to it or on the other side of that half bath. And a lot of the times I'm able to steal that closet and add a shower and all of a sudden you have a full bath, especially when they're in half baths or in primary bedrooms. I've stolen space from the closet on the bedroom on the other side to add shower space. And so you're not really changing the layout and adding a whole new bathroom. You're just expanding an existing bathroom, which makes things less expensive because the plumbing is already there.

22:04James Dainard:You're just reconfiguring some of the existing square footage. You're doing what James said, which is like for like, you're just adding an additional piece of that bathroom. Man, it's so important to just have an eye for those things. So as you're looking for properties, pay attention to where the closets are in relation to where the bathrooms are. You know, pay attention to what rooms back up to each other. I love homes that have the two living rooms, like a formal living room and a regular living room, because no one really uses formal living rooms anymore. It's not a desirable feature like it was.

22:35James Dainard:And most buyers would much prefer to see a house with an additional bedroom than to have that same square footage include one less bedroom and be a formal living space. And so that's another way I look at adding value. Yeah. Or in the basements, I love taking, you know, because basements have two beams running down them. Essentially, you can create a bedroom, but a flex space every time. So every time we do a bedroom in a basement, we always put in big French doors because we if the buyer wants a bedroom, they can get that or they can make a bigger bonus room. So it just gives them that option.

23:06And it's a non-structural move. We just frame it straight down. James, you know, this can seem intimidating. I think cosmetic, most people can wrap their head around, but then, you know, starting to move walls, you need some more skills. So like, what are the skills people need and how do you recommend people get comfortable scaling up from a cosmetic to this kind of rehab? You know, you don't have to jump right in. Like I didn't start flipping massive projects right out the gate because I did take my first step and I bought my first big fixer and it went terrible. We went way over budget, way over timeframe.

23:38And I didn't know what I didn't know. And I lost a ton of money on this house. And it was my first big swing on a big fixer. I had to take a step back and go, okay, well, I bought that really cheap. We sold it high. It was what happened in the middle that went sideways. Like I paid like 275. I sold it for 500 and yet I still lost money. That's what I had to learn how to control. And so after that house, I was like, well, I don't want to do any more of those, but I want to start learning and kind of partnering people. And so back then I was doing a lot of wholesaling and I was also helping investors find deals.

24:12And that's where I learned the most because I started selling them to more experienced investors and I would participate in their project with them. Yep. And in on one deal, I even threw my whole assignment fee into the deal and the guy gave me some ownership in it and he just let me go through the process. But I got to learn what are the steps, right? Because that's where people get in trouble. They see a vision. They see the math. They don't know the steps that it takes. So when you want to get into value, you got to build your core team. And your core team is going to be an architect, an engineer, a general contractor.

24:45And you should have three. And start just getting the facilitators for you together. You have to have yourself with the right pieces around you. That's the key. It's all about the team. Everyone wants to chase the deal. And I always tell Chase the resources in the team because the team will help you get through that deal. And so if you're new and you want to get into it, start working out, networking, meeting with people, building that team, but then start participating with other people. You can partner with other value-add investors and learn that process, see what they're doing. You get to see the timeframes and all the little hiccups and bumps that go through it.

25:21It's better to give away more up front and learn to prevent losses down the road. That's great advice. And it's something that I've been doing with James. He's been teaching me slowly how to flip, getting a little bit more involved in each deal. And that's been super helpful. The other thing I'll say, if you want to learn light rehabs, if you listen to the show, you've heard my favorite strategy these days is something I call the slow burr. It's basically, you buy a property, it's doing all right, it's got tenants, and then you opportunistically renovate it when people move out. Slow burn can be a great strategy for this if you're new, because number one, if you're buying something where there's already tenants, you're not using hard money like you would in a flip.

26:02And so if you're paying six and a half percent on your mortgage instead of 12 percent on your mortgage, it takes a little bit of pressure off you to nail it the first time. Like if you go two weeks longer, you don't hit your time frame exactly. The penalty on that is a little bit less. And the other thing is if you buy something that has tenants in it, it gives you, in my experience, a couple months to make a plan, to build the team that James was just talking about, to get permits if you need to permit something. And it just takes a little bit of that time pressure off, which for me is something that I used to worry about in terms of doing this.

26:37It was something that would prevent me from being in real estate, doing these kinds of deals because I just was worried about getting it done quickly while working full time. And so this is an approach that you can consider. Like right now I'm in Newport Beach. I just landed here. I don't have the resources and the teams like I have in Seattle. And so we're doing the biggest flip we've ever done. But I brought in a partner on it because he knew the code. He had the people. And I'm giving away a portion of my deal to him. But my overall construction costs are probably 35 % less than they would be if I hired it out.

27:11And I would still have the learning curve of going through some bumps in the city. And so by bringing him in, I'm really watching the pricing and it's allowing me to build a correct budget for my next project going, OK, this is what this takes. And my annualized return is actually going to be better, even though I'm giving away a big portion of the deal. Henry, when do you cross from light rehab to the intimidating sounding heavy renovation?

27:35James Dainard:Yeah, for me, a heavy renovation is I am touching almost every surface. And that includes the surfaces behind the drywall. Surfaces you don't want to be touching. Yeah, absolutely. And you're replacing systems, most or all of the systems. You might be redoing the plumbing because you're moving a kitchen from one side of the house to the other. You may be adding bathrooms. Adding bathrooms doesn't sound like a big deal if you're on a crawl space. But if you're on a concrete foundation, it gets expensive fast, depending on where that main plumbing line is. You could be jackhammering up your foundation all across the entire footprint of the home because the bathroom you want to add and where you access the main line are on completely opposite sides of the house.

28:18James Dainard:That is pricey. So these are the things where it's not easy to just make a decision on your own. You have to get someone else involved. Like the city may need to get involved. An engineer may need to get involved and tell you because people think you can just walk into a house and go, oh, that wall is stupid. She gone. That's not how it works. Some of these walls are load bearing, which means they need to carry the load of the house. And some cities require you to get an engineer to come in and tell you what you can and can't do or what kind of beam you need to put in to support the weight. If it's a two story house, you've got to support the floor above it.

28:57James Dainard:That's kind of a big deal. If it's a single story house, you don't want the roof laying on the ground. That thing matters. So these are the kinds of renovations where you can't just make a decision and move forward. You've got to bring in professionals or city officials to help you get the approvals necessary to make sure that the work you're doing isn't just value add, but it's actually not endangering somebody's health or safety. That's a good way to put it. I think that that's sort of the key thing here is like you're going out of your own comfort zone. And at least for me, it's like you're going out of just making decisions, being able to run the subs kind of easily yourself into something that's much, much bigger.

29:38But the reward for this is huge, right? Because this to me is where you cross the barrier of like no normal homeowner wants to buy these types of properties. You're like getting into a class of inventory that a lot of other people don't want because like a normal homeowner might be willing to renovate a bathroom. or a kitchen or to do a cosmetic rehab. But this is where you're sort of working with projects that need a lot of love, but those are the biggest opportunities. And James, like this is basically, I mean, not all you do, you do a little bit of everything, but this is like your sweet spot, right?

30:08Yeah, I'm a glutton for punishment. You know, flipping is a very hard business to run. It's very hard to systemize on a long-term basis at scale. I think it's the hardest by far, but I just love the numbers.

30:22James Dainard:This is where the juice is, right? You need the juice. It needs the juice. And this is how you create value, right? And you create equity for burrs or flipping. This is how you maximize a deal. Because if I'm looking at a house and it's 1 ,000 square feet up and it's a two bed, one bath, and I have 1 ,000 square feet below, and let's say that house will sell for$400 a square foot on the market fully finished. That's the average price. I can renovate a basement and add square footage for about$110 a square foot. You know, that's where I can 3x and 4x my money because I can go in and go, I'm going to renovate this basement.

30:59I'm going to spend$100 ,000 here and I just increase that value. And so that's the important part is what do you need to create? Now, it's not as simple as that because many times it's$100 a square foot for the entire house. But in that example, if I'm spending$100 a square foot, I'm spending$200 ,000, but I'm getting$400 a square foot on the backside. That's where it makes sense. and you can force that equity up. And so that's why it's very important to really run your right comps. What is this property worth? What do I need to create? And then it comes down to what's the cost to create that?

31:35And a flipper's job or a value add investor's job is to go, how do I keep that cost at a hundred bucks a foot? Because that is a full-time job to do that. And that's where people get tripped up because they go, oh, the math's math, it's simple, but it's all about controlling those costs.

31:50James Dainard:I agree with you. And I think another differentiator between these heavy renovations and the cosmetic and light that we have been talking about is the amount of subject matter expertise that not only you need to have, but who you hire needs to have in this situation. Because, yes, you have to hire licensed plumbing professionals, licensed electrical professionals, licensed contractors to do a lot of the major work. That goes without saying. But the decisions on what they're doing, where they're moving things to, what kind of value that creates, what kind of product that creates, that's on you as the investor.

32:30James Dainard:And you could spend a lot of money on a heavy renovation and not produce a product that your customer wants in the neighborhood that that house is in or doesn't have the amenities that they have, right? And lighter cosmetic, we're leaving things where they are. Like the house has what it has. We all already saw that and we want to leave it where it is. But now we're trying to add value by adding the right spaces or amenities that your buyer wants. And you have to have some market expertise to understand that. And you have to hire experts to do the work in the right way that you'll actually get it approved.

33:09James Dainard:and it won't sit waiting for permits or you're going back and forth with the city because they keep denying your permit because you're not doing things the right way. So it is a much more knowledge-specific value-add strategy. I think that's kind of the fun part, though, too, Henry. I was going to say, I think this is why Dave likes it because it's math and solving problems. It's like resource allocation, which is my favorite thing. It's like, okay, I got this budget. How am I going to spend it to maximize the value of this home? I'm like, James has totally converted me to the dark side now. It's fun to me to doing this, but it is higher stakes for sure.

33:44You can absolutely screw it up. You can overdevelop it. You can underdevelop it. You can do all these different things. But I was curious, what is the increase in return potential when you go from a light value add to a heavy value add? I don't know if you know in absolute dollars or your ROI, James, do you have a sense of like how much more juice there is? What I have seen in Seattle is on a six-month project with a heavy value add versus more of a cosmetic where you're doing windows, roof, and everything else, the return is going to be about 30 to 35 % cash on cash on a cosmetic. On a value add, we're looking at about 50%.

34:25And so you get an extra 10 to 15 % more for that project and the work you have to do. We got to take one more quick break. Stick with us. We'll be right back. Most investors spend more time chasing deals than reviewing their insurance. But a quick coverage check can be fast, easy, and one of the smartest ways to protect and even improve your property's cash flow. As the months get colder, frozen pipes, icy walkways, and seasonal wear and tear can increase the likelihood of claims. And traditional insurance companies aren't always built to handle these claims quickly or smoothly. That's why more real estate investors are turning to steadily.

35:02They focus exclusively on landlords, whether it's a single-family rental, a BRRRR builder's risk policy, or midterm holiday guests. You get fast quotes, flexible coverage, and protection for property damage, liability, and even loss of rental income. Now is the perfect time to review your rates and coverage. Get a quote in minutes at biggerpockets.com slash landlord insurance. Steadily, landlord insurance designed for the modern investor. For decades, real estate has been a cornerstone of the world's largest portfolios. But it's also historically been sort of complex, time-consuming, and expensive.

35:35But imagine if real estate investing was suddenly easy. All the benefits of owning real, tangible assets without the complexity and expense. That's the power of the Fundrise flagship fund. Now you can invest in a$1.1 billion portfolio of real estate, starting with as little as$10. The portfolio features 4 ,700 single-family rental homes spread across the booming sunbelt. They also have 3.3 million square feet of highly sought after industrial facilities, thanks to the e-commerce wave. The flagship fund is one of the largest of its kind. It's well diversified, and it's managed by a team of professionals.

36:10And it's now available to you. Visit fundrise.com slash bpmarket to explore the fund's full portfolio, check out historical returns, and start investing in just minutes. Carefully consider the investment objectives, risks, charges, and expenses of the Fundrise flagship fund before investing. This and other information can be found in the fund's prospectus at fundrise.com slash flagship. This is a paid advertisement.

36:57biggerpockets. That's R-E-S-I-M-P-L-I dot com slash biggerpockets. For decades, real estate has been a cornerstone of the world's largest portfolios. But it's also historically been sort of complex, time-consuming, and expensive. But imagine if real estate investing was suddenly easy. All the benefits of owning real, tangible assets without the complexity and expense. That's the power of the Fundrise flagship fund. Now you can invest in a$1.1 billion portfolio of real estate, starting with as little as$10. The portfolio features 4 ,700 single-family rental homes spread across the booming sunbelt.

37:34They also have 3.3 million square feet of highly sought-after industrial facilities, thanks to the e-commerce wave. The flagship fund is one of the largest of its kind. It's well-diversified, and it's managed by a team of professionals. And it's now available to you. Visit fundrise.com slash bpmarket to explore the fund's full portfolio, check out historical returns, and start investing in just minutes. Carefully consider the investment objectives, risks, charges, and expenses of the Fundrise flagship fund before investing. This and other information can be found in the fund's prospectus at fundrise.com slash flagship.

38:03This is a paid advertisement. Real estate investors, the April 15th tax deadline is coming fast. If you own rental property and haven't visited costsegregation.com yet, you could be handing thousands of dollars to the IRS that you don't have to. Costsegregation.com is self-guided software that helps you write off up to 25 % of your building to generate huge tax deductions. With pricing under 500 bucks and average tax savings of$25 ,000, Costsegregation.com is fast and affordable, making it perfect for single family rental properties, condos, townhomes, and even ADUs. What's more, audit defense is included in the price and backed by KBKG, the number one cost segregation company in the US.

38:47Costsegregation.com was launched over 10 years ago and has a 100 % success rate under IRS audit. You heard that right, a 100 % success rate, and that's over 10 ,000 studies. Go to costsegregation.com and use code TAXDEADLINE to get 10 % off your first report. Don't overpay the IRS. Head to costsegregation.com before April 15th.

39:14Welcome back to the Brigger Pockets podcast. Henry and I are here with James Daynerd talking about value add investing. So I've like been curious about flipping, but never done it. But I just want to explain sort of the progression I did to get comfortable with it if other people are interested in this, but don't want to dive in headfirst. Basically, I've done three flips now. The first one, James, basically, I was a passive partner. I just put money into it, just got to sort of like observe from a distance, underwrite the deal, but I had no real involvement day to day. That one turned out great, thanks to James and his team doing a great job.

39:52The second one we did together, but James was basically like, you can come and look at the property, we'll tell you about some of the decisions, but I'm still making all of the decisions. And that was a really cool experience for me because I got to like go to the property. I really learned the order of operations, which is super important to me, like when to hire different subs, when to go to the city, just how all the pieces kind of fit together. But I wasn't on the hook for sort of like big decisions about where to allocate money, how we were going to reconfigure the house. But I got to see James and his team sort of think through those things in real time.

40:24Then the third one, me and my brother-in-law bought together. We partnered on it and we made the decisions and we actually figured out where we were going to spend money. We hired the GC, we ran the subs. And by that third time, we felt comfortable. We did sell that and made some money. So I just wanted to share that with people that like you don't have to jump right into this. You know, I'm lucky and know James, but there are great flippers and great operators in pretty much any market. And if you wanna try and find, like James said, partners where you can be a part of these deals, it's a really good way, at least for me, it was a really good way to start getting into heavier value add without having to take this all on, both from a financial perspective and a time perspective right away, because I just didn't feel comfortable with that.

41:06You do that too, Henry?

41:07James Dainard:I still, to this day, meet some of my best friends and contacts at real estate events. So I'm partnering on a purchase that will close on next week of a flip. And this flip is in the heavy renovation bucket. It was down to the studs. Now, the story on this one was it had a fire five years ago, and the lady's been trying to put it back together and work with the city, and she's just run out of money, and she's failed her inspections. And so she's got a lot of things to go fix and not a lot of money. So she's just like, somebody please come buy this thing from me. So I walked into that deal and I've done hundreds of flips, right?

41:48James Dainard:I walked into that deal and I said, I don't have the comfort level to know how to fix all the problems that the city's identified. Because essentially it's like a ground up development that's gotten to the point where you're about to close in the walls and you have to pass your inspection. That's what the property is like. And I am just now doing my first ground up development. And so I didn't want to leave the money on the table. So I brought in my builder who's helping me build the ground up development. He walked the property with me. We looked at the entire list from the city. We made a plan for every single item that they've identified.

42:24James Dainard:We called the city, told them about our plan, got them to give us a light. Yeah, this will work. And then now we're buying the property. We'll 50-50 on that deal because I brought the deal. I'm even bringing the financing, but he's going to manage the renovation. He's going to be responsible for the work. And that's going to help us do this heavy renovation. And that's a partner that I met at a real estate event. See, exactly. This is a perfect example. Thank you for Henry. Like this is, this is an experienced operator who's taken on partners. Like this happens all the time. I think honestly, people think that like partnering is for beginner investors.

42:59Every, every investor I know partners all the time, like every single one. So it's just get out there and put yourself out there and you can meet these people. You know, I've found a lot of partners at BP Con over the years. Yeah, that's awesome. Good reason to come. And maybe you'll just come to the Seattle conference and you'll start meeting some people to partner with March 28th in Seattle. BiggerPockets.com is at Seattle. I'm so excited for this. We are going under the hood. By the time they're done, they're going to be ready to go. I'm excited. This is going to be a super fun event. And I think this is one of those topics where you really need to have hands-on coaching.

43:34And like James and Henry are going to be there coaching. I'm going to be there attending. I just want to learn more. But also one of the cool things is we're also doing sort of like a premium VIP kind of thing the second day. And we're renting a bus and we're going to drive around and James is going to take us to three of his projects that he's working on. So you're actually going to go get like literal hands-on experience and we're going to go out to a nice dinner. It's going to be a lot of fun. So you should definitely come check it out. I will be just making sure everyone is well fed and is having fun.

44:00And James and Henry are going to teach you how to do value-added investing. All right. So that's heavy value-added, a great place to be. But let's just talk quickly here before we get out of here about new construction, heavy development. Like James, you do a little bit of both. You know, you prefer flipping from what I hear, but like when is a good time to do new construction? Who's it right for? You know, it's just pies and best use. What can you buy it for? How much can you build it for himself? or I have a partner, Will, and he runs our new construction side. And so it's still running a Performa.

44:31You know, what can I buy it for? What's my cost? What can I sell it for? What's going to give us the highest profit? And so every deal we look at in Seattle, we look at it both ways. Does it make more sense? How much time does it take? But, you know, when you want to get into building, I think it's really important that you understand what you're buying. You know, there's a couple of hard rules I have in flipping and development. I don't buy in hills. I don't buy wetlands. I don't buy environmental. It's a nightmare and it takes forever. But usually what I see, and I have a partner, so we split this way.

45:03It's after people flip about 20, 30 homes, they start going volume. They switch to building because it's a lot more systemizable. You can buy it. You get plans. You can get quotes. And I think it really just comes down to what's the opportunity. I'll build or flip, but it's what's giving me the highest profit. What I do is I don't build a lot right now, but I flip lots off. So that's how I create value on a property. We buy it, we renovate it kind of more cosmetically, and then we sell off the daddy lot in the back. You don't always have to build to actually create value. You just have to create the value, which might be a lot or building a house.

45:41James Dainard:Absolutely. I've been doing this for years. I've been buying properties with additional lots, collecting the lot by selling the house and keeping the lot. And then that gives me options. I can either build on it if I want to, if the finances make sense, or I can sell it off if the finances make sense. We're doing one right now. So anytime I have a house that's on any kind of double lot, I usually make a call to the city right after we close and see, will they allow me to split the lot? And if they will, then I will definitely split it. I'm literally doubling my profit on one of my flips because I sectioned off an acre lot that I'll sell for 75 grand and I'll make about 75 grand profit on the flip itself.

46:19All right. Well, we're not going to get too much into new construction today, but it's just a reminder that it is there. It's another way to add value if you have a vacant lot. But for most investors, I think right now, think about what level of investing is right for you today. Or if you're an experienced investor, you could be doing all of them. But if you're sort of just doing one deal at a time, figure out which one's right for you because there's no right answer, right? If you're busy, you're doing it out of state, you're new, cosmetic works. You just have to find the right deal. Light renovations.

46:48You can find these deals. In my experience, you can find these deals right now pretty well where you can add to the value of the home, but also really driving up rents. I think that to me is like sort of what I've been looking for a lot recently. Or you can get into heavy value add because that's where all the juice is. It's really just a question of your strategy. the amount of time, the amount of capital, the amount of experience you have. But I highly recommend for everyone thinking about how you can add value in your portfolio today because it's just working in 2026. It really just does work.

47:17All right, Henry James, any last thoughts before we get out of here? Dave, I am excited for our value add conference. And for everybody listening, you're gonna get a lot of my internal documents and tip sheets and budget sheets. So if anybody buys a ticket and there's only 120, you guys, this will be blown out in no time. I will give away my free scope of work checklist. When I'm walking a property, all my team, this is what we fill out to create our scope of work. And that's what we start with when we're creating value. Honestly, that's worth the price of the ticket alone. So you should definitely check that out.

47:51Again, it's March 28th. You're gonna learn a lot, but it will also be a lot of fun. So definitely join us. James, thanks so much for being here. I will come on anytime. And Henry, as always, thank you. Glad to be here, buddy.

48:03James Dainard:I love, love talking value add. Also, if you like this episode, go listen to episode 1088. It's one of Henry's crowning achievements as a podcast host. He gave us 10 ways to add value for under$10 ,000. It's an awesome episode. It's really relatable strategies that anyone can use to go check that out. And of course, if you like this episode, share it with someone, give us a like, give us a review. We always appreciate it. Thanks again. We'll see you next time. Thank you all for listening to the BiggerPockets Real Estate Podcast. Make sure you get all our new episodes by subscribing on YouTube, Apple, Spotify, or any other podcast platform.

48:39Our new episodes come out Monday, Wednesday, and Friday. I'm the host and executive producer of the show, Dave Meyer. The show is produced by Ian Kay. Copywriting is by Calico Content. And editing is by Exodus Media. If you'd like to learn more about real estate investing or to sign up for our free newsletter, please visit www.biggerpockets.com. The content of this podcast is for informational purposes only. All host and participant opinions are their own. Investment in any asset, real estate included, involves risk. So use your best judgment and consult with qualified advisors before investing.

49:06You should only risk capital you can afford to lose. And remember, past performance is not indicative of future results. BiggerPockets LLC disclaims all liability for direct, indirect, consequential, or other damages arising from a reliance on information presented in this podcast. Thought Sweetgreen was just salads? Think again. There's a new way to do Sweetgreen. Wrapped and ready. These handheld wraps pack bold flavor and 40-plus grams of protein into something hearty, satisfying, and built for life on the go. from craveable sauces to satisfying textures. They're designed to keep you going without slowing you down.

49:37So put that fork down. Try the new wraps today in app or at order.sweetgreen.com. Available at participating locations only.