Welcome to Return on Design, the podcast where beauty meets strategy and interiors become assets that perform. I’m your host, Rachel Niederhofer, designer, investor and builder of high impact spaces that deliver real results. Alongside my husband, I run both a design firm and a real estate investment company, where I live at the intersection of creativity and ROI every day. Each week, I’ll be unpacking what most people overlook: how strategic design decisions can grow your investment, elevate your lifestyle and unlock the full potential of your property.
Every return on design starts before the first finish is chosen. It starts with how you evaluate a real estate deal before you buy. Pay too much, or buy a property the market won’t reward, and no amount of good design can make the numbers work.
This is step one of how we build wealth through design: buying smart. Here’s our process, from reading the market to backing into the price you can actually pay.
The cheapest deal is not always the smartest deal.
Return on Design, Episode 02
A low price only matters if the property has somewhere to go. You don’t need a perfect property. You need one with the right potential, and a purchase is never an isolated, one-time transaction. It’s the first move in a whole deal.
We evaluate every property on three parts, and it helps to think of them like a sandwich:
That middle layer is where Return on Design lives, and it’s why design and buying decisions can’t be separated.
Invest where you know. If you don’t understand an area, don’t buy there on a hunch. Start with your own town or the one next to it, not a city 200 miles away.
At the macro level, look at what drives the market: the city and its location, what homes are selling for, the businesses and industries in the area, and the schools that draw buyers and renters. Dig into the numbers, too: median home price, average household salary and average days on market. All of it should feed your exit strategy, because you need to know what you want this asset to do before you buy it.
Then zoom in to the micro level. Which neighborhoods and school zones does everyone want? What’s close to the shops and restaurants people want to be near? In any big city there are plenty of neighborhoods, but only some of them are where buyers are trying to be.
Once you know the market, look at comparable properties. What are similar homes selling for, how long do they sit, and what condition are they in when they sell? A realtor or investing software can give you access to these numbers.
Comps tell you both what a property is worth today and what it could be worth. Say homes in a neighborhood are selling for $500,000, and they’ve been updated within roughly the last ten years without chasing every trend. The house you’re looking at hasn’t been touched in 20 to 30 years. Now you can see the gap.
The comps also tell you what finishes produce that value. Is it updated flooring, a luxury kitchen, high-end bathrooms? Whatever the finished product is in the homes hitting $500,000, that’s the target your design has to reach, and not overshoot.
Here’s the quick math we walk through on the episode, using easy numbers:
It isn’t black and white. If there’s no realtor involved, or you’ve negotiated different fees, the numbers shift, and the equity you’re comfortable with will change from one deal to the next. But this is how you evaluate a real estate deal and know whether a property is a deal at all, because nobody should invest just to break even.
A lot of buyers overpay for the rehab because they haven’t learned the trades or what things actually cost, so they rely on someone else to tell them. A general contractor will coordinate the work and manage the subs, and you’ll rightfully pay a premium for that time. But your general contractor is not your designer, and for the most part they’ll build what you tell them to.
As you grow, build your own relationships with subcontractors, like your window guy and your tile guy, and get real bids once the property is under contract. Working directly with trades you trust gives you better quality, better control over your timeline, and a more accurate number for the middle of the sandwich.
Sellers often have an emotional connection to a home. Maybe they grew up there, and that meaning makes them value it above what the market will pay. Buyers fall into the same trap when they fall in love with the cutest little house. If the numbers don’t work, it’s not a deal.
The same rule applies to design. What we find beautiful may not be what the market for that property wants. A clean, modern look might suit a younger demographic in one area, while a traditional or French-inspired look suits another. Both are beautiful, but putting the wrong one in the wrong market won’t return. Overdesigning, installing finishes the market won’t support, loses value too.
It’s about the market. The market needs to lead the design.
Return on Design, Episode 02
On one home we rehabbed, the house could have used a full renovation, but the market wouldn’t have returned it. So instead of doing everything, we decided where the money would produce the most and stopped there. Design for the market you’re selling or renting into, not for yourself. That’s the core of our investment property interior design work.
If you take the time as you grow and you learn the trades and you build relationship, and you learn how to manage the projects and you understand construction, you will already increase your ability to gain that return and have more control over your own project. Welcome to Return on Design, the podcast where beauty meets strategy and interiors become assets that perform. I’m your host Rachel Niederhofer, designer investor and builder of high-impact spaces that deliver real results. Alongside my husband, I run both a design firm and a real estate investment company where I live at the intersection of creativity and ROI every day. Each week I’ll be unpacking what most people overlook, how strategic design decisions can grow your investment, elevate your lifestyle, and unlock the full potential of your property. You’ll get real tools, proven strategies, and unfiltered conversations with industry experts who are doing it right. So if you’re ready to invest with purpose and leverage design as a powerful tool, this podcast is for you. Welcome to Return on Design, the podcast where we take you behind the scenes and tell you exactly how you can leverage interior design strategically to build assets, to build wealth, and to increase the value of your property. And your life. I’m Rachel Niederhofer, your host, and I am joined with my co-host and amazing husband, Justin.
Hey, howdy. I’m Justin. Like I said, I’m her husband, business partner, co-pilot on this journey of trying to transform properties into performing assets. Yeah.
We’re happy you’re here and we hope that we add a little joy and value to your day. On today’s episode, we’re really going to focus on how to build wealth through the concept of Return on Design. So on today’s episode, we are going to take you a little bit behind the scenes on how we buy properties and how we position ourselves in the market to buy smart so that we can actually create wealth by implementing our Return on Design methodology. So let’s break it down. Go ahead. So let’s focus on three primary steps to creating wealth just one step at a time. So step one, buying smart. How do you do that? What does that mean? What does that mean? So we’re going to tell you exactly how we do that. Let me just start off with the premise that buying smart does not equate necessarily to buying cheap.
The cheapest deal is not always the smartest deal.
You really don’t need a perfect property. You need a property with the right potential. So one of the first premises or really strategies to buying smart is evaluating the deal. It’s not an isolated one-time transaction when you’re buying for the purposes of getting a return. There’s strategy behind the whole deal and making sure we’re evaluating the full potential of a property in three different categories really. So there’s really three primary components that you need to consider when you’re evaluating a property. You need to know what the current value of that property is. You need to know what the potential value of that property could be. And then in between, think of it like a sandwich. We’ve got the current value of the property, the potential value of the property, and the meat in the middle is the rehab or the design strategy to execute on the property to get it from where it is to where it could be. That is the foundation for buying smart. Well, how do you do that, you wonder? You have to know your market. Justin, tell us about knowing your market. Yeah.
Knowing your market means where are you investing? Knowing the area, knowing what is driving that area, those are things, those are key components to being able to buy and invest wisely. If you don’t know an area, I wouldn’t exactly recommend trying to start investing there on a potential, on a wild hunch, but if you know your local town, okay, what drives that? Or the town next to you, maybe not the city 200 miles away, because that’s not where you’re at. That’s not where your focus needs to be. It’s where is the area that I know that and what I can, the area that I know.
So talk about how do you get to know your market? Because as a beginner, yes, you need to be focused on your area, but even as you grow and expand into other areas geographically, how do you get to know your market?
What are the driving factors behind that market? What’s moving it? What are things that it has that are offering that make it a desirable place? From the macro level, looking at the city, its location, what’s around it? What are home selling for? What are average numbers maybe, or what fields or businesses drive in that area? Also looking at schools and things of that nature that are desirable to potential buyers or renters if you’re looking for investment properties. What are the things drawing the people into the area?
Yeah, other things to know, I would even piggyback would be what’s the average home value? What’s the average, just dissecting those demographics and economic factors? What is the median home price, average salary per household, average days on market, and all of that can be applied to your strategy on what are you trying to achieve as you’re buying this asset? You’ve got to have a strategy in mind, known as like an exit strategy. What do you want to do? What is your goal?
Part of the next step in diving down into that knowing your area, you start to dive into more of a micro look, because that was kind of macro. What’s driving forces in the area? Let’s go a little bit deeper as to where I want to invest, what neighborhoods, what school zones, again, those things that are going to drive people to be in an area, because let’s face it, in a town, in a big city, you’ve got lots of neighborhoods, you’ve got lots of schools, but where are the ones that everybody wants to be? What’s closest to the things that people want to be around? Certain shops or food or not, everybody wants to drive.
And being able to evaluate what’s the property worth today? What’s the potential of the property? What’s the sandwich in between the meat of the sandwich? How do we implement design strategically through the renovation process to get it where it needs to be? So once you have really honed in on getting to know your market, understanding what’s happening in that market, next step through the process, evaluating the deal, not just the property, would be to your point, getting a little more zoomed in on the micro level, and let’s start looking at comparables on the market. What are homes in this area or properties, if we’re not even talking about residential, what are properties that are similar to this property selling for? How long are they sitting on the market? What is the condition of the property when it is selling? You can partner with other people in the space if you have a realtor or if you have investing software that allows you to have access to these type of comparable metrics. So next step in the process is, okay, I know what the value is today based on kind of what I see out in the market. I get an idea of what things are selling for. And I can see also the next layer, which is what is the potential of this property? Again, you’re going to be using the same comparables to help determine not just where your property falls today in terms of valuation, but the potential of what the property can be. So let’s break it down just for them. If they, let’s say we’re in a neighborhood where potential value of the property is 500,000, comparables are showing homes that are selling in this area for 500,000 are relatively updated. They are not exuding all the latest design trends, but they’ve been within the last, let’s say 10 years. So if the aftermarket value or the potential value of the property is $500,000, how do we back into what is the potential value of that property today? And notating the fact that current property, let’s say in this example, that we’re looking at hasn’t been updated in probably 20 to 30 years.
Part of the way that you’re going to back that into it is looking at the current existing property. What defects do you find? What issues, what big pain points are there? I mean, if, yes, okay, this place hasn’t been updated in 30 years or probably even ever in some cases, like we’ve looked at through our knowledge of what material costs and labor, because this is what we’re doing on a day-to-day basis, we get a pretty good estimate of what is going to cost me to bring it up to the current standard of what is being sold on our market, what’s moving, what features are people wanting, and what it’s going to take to bring that potential, that current property up to that value.
Buying smart, it’s a package when you’re thinking strategically about buying smart, because we’re focused on the deal, not just the isolated initial buy. We’re thinking potential long-term investment, and we want to break that down for you. There’s really three steps to evaluating a deal and buying smart when it comes to building wealth and implementing Return on Design in the process along the way. Step one is what is the current property value, whether you’re looking at a residential, a commercial, it really doesn’t matter, even raw land, what is the current value of the asset as it sits today. The second component is what is the potential value of that property. After I invest in rehabilitating or rehabbing that property, whatever it needs, it should have a projected value. That value is going to be determined based upon market conditions. Back to your point of really honing in, knowing your market, learning your market, whether it’s the market you live in or not, doing your research, and making sure you have adequate information to help you make good decisions.
Yeah. You’re starting point A of current value. You’ve got your end value B, but what is that in between that’s going to get me from A to B? That’s the key piece of knowing the upgrades that need to be made, the cost of good services of things to get that done. That’s your in-between. Is it going to equate that I’m not going to sink so much money into this current value that I exceed the potential value, but I want to bring it to that value but still have a little bit of room in the middle that I make a little bit of value. I earn extra equity. Yes.
Whether you’re going to sell it or sit on it for a while.
Whether I’m going to sell it in six months or five years or I’m going to sit on it, it needs to build value for me.
Absolutely. That is the return. You’re going to get that return. I would also propose that you can even back into that rehab assessment. If market conditions can help you identify, okay, what is the current value of this property? What is the potential value of that property? Well, now we have this spread. We’re going to take that potential value, also known as the after rehab value ARV. We are going to back into our loan to value or a reasonable price to pay that’s going to help us hedge the risk of what we’re stepping into and also leave room for profit. How we do that, just a quick number mathematically, let’s say the aftermarket value is $500,000 for a property, and we’re going to do an 80% loan to value on the high. That would be pretty high, but for easy math, like you said, let’s break it down.
If you’ve got a property that’s your ARV, you’re projecting 500,000, you’re 80% loan to value ratio. That brings you 400,000 because 80% of 500 is 400.
Okay, let’s pause right there for our listeners. That’s $100,000 spread. Within that $100,000, you can expect to hedge the risk you’re assuming in the market if market conditions shift. You’re going to pay fees associated with the purchasing and or selling or both the property before and after you’re done, and you’re going to reserve a portion of profit for you to walk away with or equity if you’re going to hold onto the property. So that’s what that spread is. Okay, now back to you. You’re at your 400,000 number.
You’re at your 400,000. Now, what is it going to cost me? What is that number that is going to take to repair this or to bring this property up to our projected ARV?
How we determine that is this whole concept of your interior design. You are redesigning or rehabilitating a property based off the potential of that property. So we’ve determined that potential valuation in dollars, but that a deeper level into that determination is the actual finishes. So looking at comparables in the market, what is the finished product that’s getting us 500,000? Is it all updated flooring, luxury kitchen, high-end bathrooms? Whatever it is, we have to be able to identify exactly what the aesthetic, what the finished good is that’s going to determine that valuation. Then we have the strategy. So we’re sort of, I look at it as almost like backing into it. Now we have the strategy of, let’s say we have five bullet points, okay, we’re going to have to update this kitchen. We’re going to have to update these bathrooms. We’re going to have to replace this floor and we’re going to have to open up some walls, let’s just say. And we’ll throw in some windows. So we have five bullet points. Now we go down line item by line item, each bullet point. What is it going to cost? And I think a lot of people in this space end up overpaying for services because they haven’t spent the time to learn the trades, to build their own knowledge base, to understand the cost breakdown. And they tend to rely on other people.
I, general contractors in some cases, your general contractor is not your designer. I’m just going to throw it out there. That’s what a designer is for, to help you bring something to the table. Your general contractor can help you with people and services to get there, but they’re not designers. They’re just not.
Yeah, they’re going to do what you tell them to do. There might be some that maybe have some in-house support, but for the majority, you’re going to be the one making decisions and you’re going to pay a premium because they are going to service as your project manager. So they’re going to oversee what’s happening. They’re going to coordinate all the subs and, you know, you have to pay them for their time rightfully. So if you take the time as you grow and you learn the trades and you build relationship, and you learn how to manage the projects, and you understand construction, you will already increase your ability to gain that return and have more control over your own project.
Yeah, you can work with your relations that you’ve made throughout the different trades, people who bring a quality work that you know, and you expect from them and you know that they deliver because they have time and time again over throughout projects. And you have better control over your own timeline. Yeah, you have better control over the timelines, working directly with them versus they’re getting scheduled by multiple people in different ways.
Yes, okay. So back to our example, we have five primary areas that need attention for this home to meet the potential to get that valuation of 500,000. So now we have broken out each area is going to cost. You can do that one of two ways. Initially, you know, depending on your level of experience, you can start to estimate based off your knowledge base, but you can also bring in if you are working with a general contractor, them or I would encourage you to start developing your own subcontractor relationships. You can bring in your window guy, you can bring in your tile guy, and you start getting real life bids after you’ve already secured this property under contract ideally. And now that we have broken down, let’s just say hypothetically, this is going to cost us a hundred grand to do this renovation to get this property from where it sits today up to the $500,000 valuation. And remember, Justin’s already walked us through back to send to our loan to value, how much we can actually allocate after taking out that cushion, that equity, the fees associated, we’ve only been able to allocate that 80%.
We have $400,000 at this point. $400,000. So now I’ve got an estimated repair of $100,000 and I’ve got $400,000 value. So $400,000 minus $100,000, you’re back to three. So at this point, about $300,000 is about the maximum that I really want to and feel comfortable that I could pay for this property.
That is your sort of quick math.
What this property is worth today.
And helping you get to that point. Yeah. Yeah. Now, as we’ve experienced, you have a little bit of flexibility. This is not a black and white scenario.
It’s not set in stone. You work your numbers because what equity you are comfortable with on this deal is different than the next one.
Yeah. This is a baseline to help give you structure to how the numbers work. But you have the ability once you get into the process of tweaking that, modifying that based off of your situation, maybe you don’t have a realtor involved, so you don’t have to budget for realtor fees, or maybe you have negotiated a different fee associated with that. Or whatever this scenario is, which there’s many, you have the ability to kind of
Play with your numbers. Yeah.
Which really leads you to the full lens perspective of the deal. So now, we’re going back to buying the initial asset, how to buy smart, right? Well, we wouldn’t have known that number had we not evaluated the entire deal, because we don’t want to buy the asset if there’s no potential for an equity return for the investment to actually grow in value.
Nobody invests money just to break even. Or you shouldn’t. Or lose money. Definitely not to lose money. But if you’re investing in a property or you’re investing in something, you are looking for a return out of it.
Yeah, absolutely. And if I could give two main takeaways in terms of how you need to function as a smart buyer is keep the emotion out of it. And it’s not about what you like necessarily. It’s about what the market wants. So we have so many scenarios, but if we just talk about, let’s hone in on one story here. One example, yeah. Oftentimes when we go to buy a property, the seller may have an emotional connection to that property, rightfully so. Like maybe they grew up in that house, or it has some sentimental value to them. And so for that purpose, sometimes sellers think that the value is greater than what the market actually demands, because it has a meaning to them. It’s that whole emotional aspect that’s involved in life and in the process of design.
Yeah. But as investors, we’re looking at it purely from the number standpoint. Yeah. Your emotion bears no charge in what you’re willing to do from a number standpoint.
Right. And you’ve got to stay focused on that strategy, because that emotional pull, if you fall in love with the house or it’s just the cutest little house or whatever, whatever the potential in your mind could be, if the numbers don’t work, it’s not a deal. It’s not a smart buy to succumb to something that deviates from that strategy-based approach to making sure you’ve got your return. What was I going to say? Oh, it’s not what you like. Now, this is like a huge design thing. And Justin can attest to this, because as a designer, I want things to be stunning. I want them to be perfect. Everything should be beautiful.
And it should be. It should be beautiful. It should be amazing. But you can’t go down the rabbit hole of every little detail.
Well, and beauty is in the eye of the beholder. Exactly. So what I think is aesthetically beautiful may not serve the clientele that the market demands for this property. I might have a, what’s it called, champagne taste on a beer budget or whatever?
Well, there’s that. But for an example, an area that, if we’re on the subject of homes, okay, an area that is lending into a more modern feel, where it’s very crisp lines and squared.
To be a younger demographic.
Younger demographic versus an area that has a little bit more of a traditional or French, they are two completely different aspects and views. Both beautiful and stunning in their own rights and ways. But if I go with this French kind of inspired look in an area that is requiring more of that modern touch, it’s not going to perform as well. It’s not going to do as well. You’re not going to return.
It’s about the market. The market needs to lead the design.
And I probably took that a little down, but you know. Yeah.
Like if I wanted it to be what I would live in all the time, that may deter the right buyer in that market. So point being, keep your emotion out of the purchasing. It is strategy-based. It’s business. It’s not personal.
And your emotion out of the design too.
Yeah, you’re right. That’s a great way to say it. And keep your emotion out of the design. Because what you think is beautiful may not be what someone else thinks is beautiful. Your tier of what you prefer might be different than what you’re rehabilitating. So just making sure.
Designing within what is going within the market. You can over design and start to lose value in your design aspects because you are over, you are installing pieces and things that are not supported by the market that you’re in right there. And this is again, knowing the market where you’re at.
Yeah. And the strategy breakdown around the design, which we will get deep into that in another episode because there’s a lot surrounding where to allocate funds, why, you know, we’ve just a quick backstory. There’s been a home that we have rehabbed that we, the budget didn’t equate to allow us to do everything. And the market, the market didn’t lend to it. So the house could have used a full renovation to make it absolutely amazing. But the market would not have, we wouldn’t have seen the return based on the market demographics for that space. So instead of doing everything, we strategically evaluated, what should we do? What does the market want? And what is it that, where is the money going to produce the most fruit in the renovation? And that’s what I mean by really breaking down that strategy around the design and how you’re going to implement it to get the right return. So key takeaways today, knowing when to buy smart. Remember, it doesn’t have to be perfect. Buying cheap is not the same as buying smart. And you always want to evaluate your deal, or you always want to evaluate the buying process as a deal. It’s not an isolated event, it’s a deal. There’s multiple facets to how you get to that valuation and when you’re buying that property.
And again, knowing, knowing where you’re starting at, where you’re trying to get to, and what’s the in between so that in the end, you walk away with a greater equity value than you started with. Yes.
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