Three Buckets: How to Think About ROI in STR Value-Add Design | Ishita Nagda Lalan | part 2

This episode isn't about design aesthetics. It's about capital allocation - and what it actually takes to turn a distressed property into a top-performing short-term rental.

In Part 2 of this conversation, Ishita Nagda Lalan - architect, STR investor, and founder of a design firm built entirely through word of mouth - breaks down the frameworks, mistakes, and real project numbers behind high-ROI STR renovation.

She walks through a property bought at $850k, renovated for $300k, and reappraised at $2.1M four months later. Not to celebrate the outcome - but to explain the three-bucket framework she uses to evaluate every value-add deal: appreciation, cash flow, and tax benefit. And why looking at any one in isolation will give you the wrong answer.

In this episode: 

• The ROI framework she applies before touching any project scope
• Why the highest return isn't on a hot tub, a bunk room, or a landscape feature - it's on the experience those things create together
• The three most common mistakes first-time STR investors make - and the one that costs them the most time, not just money
• Why she steers budget-constrained investors away from Scottsdale and Asheville entirely
• How she thinks about durability vs. aesthetics - and why she'll replace a $350 rug every two years without hesitation
• What she sees when she walks into a poorly designed STR - and what she wants to fix first
• Why STR design and boutique hotel design are two fundamentally different operating problems

This is a conversation about design as a financial instrument - not a lifestyle upgrade.

Part of the Chief Milestones series: real operators, real constraints, real decisions.

Chief Milestones is a video podcast featuring honest conversations with founders, parents, and investors about building real businesses, staying healthy, and raising families.

New episodes release Tuesdays and Fridays.

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Transcript

The Fly Me To The Moon Project

Ishita Nagda 0:00

When you're doing value add deals, you're looking at it in three buckets, right? There's an appreciation bucket. Now, this property obviously has appreciated a million dollars more. There's cash flow, and then there's a whole tax benefit. You do landscaping, you can literally write it off. The first year 100% of it, and all the tax benefit that you can take can cost like. The addition of all these three is what I would say is the highest ROI. So we had to take that, and it was sentimental to her, and we infused that in our design. And our entire basement is in the theme of Fly Me to the Moon, where we have, you know, posters and everything that is music. We literally have a frame with a barcode that someone can scan and takes them to their son's uh Spotify album. So everything that they can relate to.

Reshma Vadlamudi 0:48

Yes.

Ishita Nagda 0:49

So every project comes with its own challenges, and that's the beauty of it. And that's what I love, what I do every day, that every day is so unique and every project is so unique. So it just depends. But overall, if I were to answer it, if I walk into a property, then the layout would be like the first one and the location of it and how the light entered and what the structure is.

Reshma Vadlamudi 1:08

Yes. And then sometimes you come up with a story, but then the clients also are based on their sentiments, you build the story around it. Yes. Yes.

Ishita Nagda 1:18

If we've, I mean, in STR world, it becomes a little less when clients are super sentimental. That happens in a lot of primary homes where they have their own choices. But yes, whenever a client, there are some clients who are very engrossed with the process, right? So if they want to have their story, we are all welcome. In the end, I look at it as an extension of their investment.

Reshma Vadlamudi 1:39

So, what are the top design upgrades that yield the highest ROI that you're seeing? I know this can change pretty quick in the SDR space. Yeah. Whatever the current one is. And I am also assuming it would change based on the market.

Ishita Nagda 1:52

I think it changes definitely based on the market. It changes. I just feel that I don't have a number to put in on an amenity that, hey, if you put a hot tub, it will give you X amount of money. There are data out there that you can get, but there is not like sure short, right? You can guesstimate that. But what I feel like it's a combination of everything coming together and how experiential space are you creating?

Reshma Vadlamudi 2:17

Yeah.

Ishita Nagda 2:17

That is getting the highest return on investment.

Reshma Vadlamudi 2:20

So you are trying to tie in those tiny moments, moments that people can count on. Like it's not about the ROI on that particular amenity. Yeah. It's you curating those moments for them. Absolutely. Okay.

How To Think About ROI In Value-Add Deals

Ishita Nagda 2:34

So for example, if you come to Asheville to invest, right, as a new new investor and Asheville intrigues you. If you're entering a market like Asheville and you're studying the top performing properties that are doing 350, 400k, and if you want to reach that six-bedroom, seven-bedroom home, that's a non-negotiable all the amenities those top performing properties are having, you have to have it to even like be at that level.

Reshma Vadlamudi 2:58

Yeah.

The $850k Property That Appraised At $2.1m

What Actually Drove The Appraisal Jump

Ishita Nagda 2:59

And then what that 10%, 20% extra that you give to that property that will even push that bar, right? So I just feel like that high highest ROI is literally, depending on the market, that if you want to be, you have to definitely match the highest performing property. But what I have seen again, I can give you an example of a property that we just did two months ago. It was an existing Airbnb for two years, grossing around 180, 200k, or last year probably did 140k. My client had invested, bought the property for 850 with 50k seller credit, invested 80k in 2023 all by himself. No designer was grossing what I said. Probably last year in 2024 did 140k. He re-appraised the property in January 2025 because he literally's a realtor himself and he sold the neighborhood uh house. So he knew that his property was extra square footage and would appraise at least that or more than that, and it appraised for 1.1. He came to me and he said, Ishwita, I really want to future proof my portfolio. Uh he was having troubles with his well going dry or some of the technical errors and maintenance issues that he was having. So he was not literally cash flowing, but he wanted to just future proof his portfolio and he knew he had a great square footage. I was like, okay, I walked in, saw a lot of potential, like his backyard, he had a massive backyard, and he just had like one big fire pit area and a hot tub, and that's about it. Interior of the space, he had seven bedrooms and sleeping only 20. So there was a lot of space where we could increase the heads and beds, right? There was a three-car garage out of which one car garage was just a storage junk unit. They had not even maximized it, and two-car garage was just a theater room, which was not even appealing in the photos. So these three areas itself and all the bedrooms were bland, so adding feature walls and whatnot. He gave me a budget of 180k, and I was like, if you want to do it right, we need to invest more to it because we have to put do the entire landscape. We did three-car garage conversion, that's almost 900 square feet of added square footage to the house. And then we we rearranged the entire furniture, added feature walls, got the occupancy to 28 people, which that market doesn't even have 28, except for one house that I know of. After we we entered the property, we broke the ground in mid-February. We got done first week of May. He reappraised the property, it appraised to $2.1 million. That is $1 million more than the property had appraised in January. He made a million dollars in we invested around $300k in that property, but a million dollars in four months, he could pull, he refinanced, he pulled out, pulled out 700k from that property and dispersed it in his future investments. Now, what would you say as an ROI when you're doing value add deals, you're looking at it in three buckets, right? There's an appreciation bucket. Now, this property obviously he has appreciated a million dollars more. There's cash flow. This property, which was cash flowing 180 to 140, 40, 140 to 180, is now going to cash flow at least 250 at the most conservative way. We are hoping for 350k, and then there's a whole tax benefit. You do landscaping, you can literally write it off the first year 100% of it, and all the tax benefit that you can take in cost seg. Yeah, so that is what the amalgam uh the addition of all these three is what I would say is the highest ROI.

Reshma Vadlamudi 6:21

Yeah, yeah. So makes sense. So with that, like how did the appraisal go so high? Is it the 900 square feet? Like, what would was that not livable and was that converted into a livable now?

Ishita Nagda 6:33

Yeah, so it's very difficult to again pinpoint, right? What appraiser appraisers are saying, and that's what my experience with building houses and doing cosmetic any renovation, definitely the 900 square foot footage of the space that we added will definitely add on. But the minute appraisers are humans too, the minute that they walk in a dated home versus a very well renovated home, that the cosmetic upgrades also have some value to it, right? So if now they are looking at a better furniture, better feature walls, uh everything nice upgraded, there there is some dollar amount that has gone to that. And a full-fledged landscape, like that resort-style landscape area that we are creating, and that's what sets us apart as well, because I've seen a lot of landscaping projects that people end up doing, and you know, nothing wrong with it, right? In the end, it is its experience. Um and if it is paying off for that particular market, great. But what we are seeing, especially in what we have literally pushed our bar, we are not creating these different squares of amenities like this is your pickleball goat. Okay, we are literally creating a resort-style experience where everything is connected to and it feels cohesive, not only in the exterior, but when you move in, everything just flows together. Yeah. And people to put that kind of a landscape out there, everyone can say it's like we would have spent 120 on that landscape, but it looks like a 200k dollar project. So all of that, and then you're comparing to the top properties in that area who had I I think that is unfortunately. I don't have a real answer, like how did the appraiser do it? Because they don't give you the pointers, these are the reasons. But I feel like what I can gauge, these are the things that we did, and I think that would have resonated with the appraiser.

Reshma Vadlamudi 8:13

Yes. Okay, understood. So, what mistakes do first time investors make when designing STRs and how can they avoid them?

Ishita Nagda 8:20

The first time I would say it in three parts. Like, first is when you know they're trying to save the upfront cost in, and I I completely understand. When I started my real estate journey, it's not that we had deep pockets, right? We were completely bootstrapped. We were trying to do everything ourselves. Like my husband and I, we were literally painting, doing flooring, and whatever we could save on the labor that we could. And absolutely, I I encourage everyone to do that. And if you're you know you're trying to go long way, but try to probably understand the market well, understand where the industry is going, understand that this is not, I think the first time mistake would be not looking at your investment, short-term investment property as your primary home, looking at it as a an experience that we are trying to create, what the industry standards are, and trying to achieve that. And even there's a ton of knowledge on the internet. There's a ton of knowledge that you can if you cannot afford like a professional designer, which I understand, but then there are consultation calls, which are fraction of the design costs where you can literally have like a three-hour consultation call, just run through the ideas, just get it approved, and then implement it. So not looking at uh not looking at it as their primary home would be one. Secondly, if they are trying to save money, but trying to make sure that you have knowledge and you're up to the industry standards would be the other one that I can think of. And the third one where I've seen time and again where you know, in the beginning when the clients are trying to save them money, again the upfront cost, and then they think that they can execute the project very well. Not understanding the construction industry, not understanding how much it takes to execute a project and deep diving in it and not realizing how much bandwidth they have in their life. Yes, they're really, you know, gearing up for failure because it it is a whole lot dealing with contractors, especially if you're not in that area, you are remote. It's a nightmare of a process. But I have seen clients getting brunt of it where they would have wished, like, why didn't I just give you the entire design pro you know, execution process? They would have saved the time, they would have saved the hassle. So these are the things that I just know your strengths and hone in on it. And if you need the professional, then just hire it out. So just know the boundaries, you know.

Reshma Vadlamudi 10:36

Yes, yes. So the market research and then know the if they have to budget in at first, just because this is also about the first-time investors, maybe it's just not saving up that down payment and getting the property. It's also about hiring the right people to get even after before it goes live. You also have to budget that in. And if you can't at the present time, uh, if you want to do it, do your market research, try to be at least at the same level as your competitor, whatever that could be, if it's a three and two or whatever that is, match to that at that point, and then eventually start saving up all that, and then invest into that in uh designer who could do that for you.

Where To Invest When Your Budget Is Tight

Ishita Nagda 11:22

Exactly. And I think if you're a first-time investor and your budget is really tight, then look into the markets that there is not much competition, that a little would go a longer way, right? You do not want to enter markets like Scottsdale or Asheville, where competition is literally cutthroat. So I would rather go in remote spaces because travel, I think people if you can create experience, any unique experience with the budget that you have, people are going to travel for it.

Reshma Vadlamudi 11:47

Yes.

Ishita Nagda 11:48

And I'm saying that because I just went to a music festival last weekend. It's in the middle of nowhere in Michigan. It's middle of in the forest. There are there is nothing. There is no hot tub, there is no sauna, there is no amenities to enjoy, but just music and the way they have created that experience. That I literally came back thinking that I want to make it an annual trip to this festival because how it made me feel. And it was just in the middle of the trees, and we were just in the lying in the hammocks and just enjoying the way they did. It was literally playoff lights that that intrigued us so much, or having like an outdoor piano that we could just play. I'm just saying, just unique things, it doesn't have to be very expensive.

Reshma Vadlamudi 12:30

Yes, yes, thinking from that experiential hospitality perspective, yes, and then adding your own touches to it. Absolutely, yes, okay. How do you balance aesthetics with durability and guest proofing?

Ishita Nagda 12:45

This is definitely a tricky one because you know, people understandable we have more wear and tear because we are dealing with the guests coming in and out.

Reshma Vadlamudi 12:53

It is not all these are huge properties, these are huge properties.

Ishita Nagda 12:57

We have different people coming in and out. You're not sure how they're going to take care of your property. So there's a balance. You cannot have every material that is durable. Anything which is high durability has a high price point attached to it too. So it's not that we are able to afford in a short-term rental when we have to furnish a six-bedroom home with everything to the batteries and the cells that needs that you can spend probably, you know, $1,500 on an accent chair. It's not feasible. So then at that time, the way I look at it is, you know, people uh usually the debate is always the rugs, right? Let's get darker rugs because the lighter ones get stained. But when we are designing and we are act, you know, putting so much effort on the wall design, adding so much colors and the patterns, and then the furniture has color. The space might look super dull if I have to use a dark rug, right? I'm the way I balance it, I mute it down with using a lighter tone rugs. It could be I not super white, but it would be creamish or it would be. But if they are $350 a rug, I am okay spending that money. If it lasts me two years, it's okay to replace it.

Reshma Vadlamudi 14:08

Yes.

Ishita Nagda 14:08

And in short-term rental world, I would tell everyone yes, it will be a high upfront cost in investing in a short-term rental, but every two to three years, you will have to go in and spruce up your property because there is going to be high wear and tear, there is a lot of maintenance, and uh, but the cash flow makes sense for it. The amount of cash flow that we get from short-term rental, it absolutely makes sense that you can go back and spruce it up a little bit. And as the market from 2019 is when I started to 2025, it's been six years now, the industry has grown drastically, right? Like the amenities that we are seeing, these tiny residential homes are becoming mini resorts almost. Right in 2019, it was just like I remember my first Iowa property. We were the first one to put a hot tub in, and that 330k property in which we put 50k in renovations because labor was all ours, it performed around 120 year one and consistently has been doing six figures, except for the last year, because it has a lot of wear and tear and we have to go back and spruce it up. But to even do more than 80k on a 330k property, it's great ROI.

Reshma Vadlamudi 15:17

Yes.

How To Think About Furniture Replacement Cycles

Ishita Nagda 15:18

So I was just saying, just be prepared that you have to go in and you have to change furniture or two. So I would not, I would definitely look at the reviews that they are good, they are they they can take the weight, look at the weight limit, look at the furniture if they can be cleaned easily. I would not offer velvet or lot because you know a lot of dust gets stick stuck to it. But there is always a balance. I don't think so. You can only offer super high durable material. So that is my answer. Unfortunately, there is no good answer to it.

Reshma Vadlamudi 15:45

Yes, yes, yes, no. Actually, it totally makes sense because I some of our we are in this only for the past two to three years in the short-term rental game, and uh whatever. Like so far, we didn't have to replace most of the couches or anything, uh, but even like this two years, we were still factoring in, like we are trying to make up those reserves per property. Yeah. If we were to re if we were to go get something else. But then did you ever run into issue, especially with uh because most of our furniture is coming from Wayfair or something like that? Yeah, did you ever run into issue like where you would want to buy that particular thing, but it's either gone or is it out of stock or they're not coming back, or what would you do with situations like that?

Ishita Nagda 16:35

Yeah, absolutely. I think you run into it all the time, right? I run into it on every project basis. Like imagine if I've designed the entire home with mood boards and the renovation is taking time, they won't order the furniture one month prior to the installation. But my furniture has already been picked out probably a month ago. And when they try to shop, it's out of stock. So I have to go back in and replace it. I would just say that uh I don't think so. It's it's uh you have to always opt for the same furniture that you had two years ago. You can bring a change, right? Like uh if you it depends on what your interiors look like, but something similar, color palette. If you you had a rust couch, probably a leather couch would look good instead of that.

Reshma Vadlamudi 17:15

You would bring in something similar uh and then retake the photos or something like that.

Ishita Nagda 17:20

Absolutely.

Reshma Vadlamudi 17:20

Okay, yeah, okay.

How To Budget For A High-Converting STR

Ishita Nagda 17:21

So that's what you would something similar, or I would just go a tad bit different as well. It it just literally depends on how much time you have, how fast are you looking to replace that, and then just retake a photo on your iPhone and smartphone, and then you can just repost it.

Reshma Vadlamudi 17:38

Yeah, okay, okay. How much should someone budget for a high converting STR design?

Ishita Nagda 17:43

Again, this question is something that uh is is very tricky to answer because there is no right answer to it. Uh, every project is unique on its own, the scope depends. Uh, it's scope dependent. I know there is a whole again, talk in the industry, these high performing are putting in 400, 500k in the projects. But I want to really challenge everyone. Let's not look at just that 400 and 500 number, right? Like, what are you investing that 500 into? Out of if it is a six-bedroom home, probably 100k is going in furnishing and decor. Rest $400,000 is going in all value add amenities where you probably are adding landscape to it, which is going to be with the property. You're converting these if the scope has unfinished basement, you know, 2,000 square feet of unfinished basement and you're finishing it, that's literally going to be a value add proponent to that house. So there is again, I cannot answer that because it won't be right to answer a number associated. It is really scope dependent. We have done three-bedroom home new construction where we have gotten it done in 120k. And there are there have been three-bedroom homes where we have to renovate and we have put 250k.

Reshma Vadlamudi 18:57

Yeah. So and it's also market dependent.

Ishita Nagda 19:00

It's market dependent, it is code dependent, feed dependent, it is what the condition of the house is. When you start renovating, and uh, you know, as a designer, yes, we can quote you a design fee, but I do not know what is going behind the walls and under the slabs. Yes. The minute you drip out the slab, you get to know wow, the plumbing is not up to the code. So now we have to reconnect. So that adds to the scope, right? Yes. So those are the discoveries throughout the renovation project.

Reshma Vadlamudi 19:27

So renovation are not just the design part, it's also the renovation part. That actually stays with the building.

Ishita Nagda 19:34

Stays with the building. Yes. And my clients, uh, not only my clients, our own investments, when we we are into high-value ad uh projects ourselves. One of my projects, we have put in 450k in it. We bought that property for 630, put 450k in it, and we were the first ones to do that full-blown landscape project. We converted 2,000 square feet of unfinished basement into finished basement. There was a lot of like the house when we bought was not well maintained at all. So we had to redo the decks, we had to redo all the interior bathrooms. So 450 went towards all of that. When we reappraced the property, that property got reappraised to 1.375. So now all in cost of ours was like 1.1 to now 1.375. So now we could pull in all our money that we invested in, and then we have, you know, now that property is cash flowing anywhere from 250 to 300k. Yes. Like last year it did almost 280. This year we are in a verge of doing 300. So that's the recurring, right? So when you're talking 450, it might look like a number, but yes, you've gotten the fruits of it. Now we are re like you know, every year we are reaping out of it.

Reshma Vadlamudi 20:40

Yes, you're also of force appreciating it, and then you have that high cash flow on top of it.

Ishita Nagda 20:45

And the the whole tax benefit that we gained as well, the cost seg.

The Design Error She Wants To Fix Immediately

Reshma Vadlamudi 20:49

Yes, yes. Okay. So, what's a design mistake you often see in S years that you immediately want to fix?

Ishita Nagda 20:55

When there is no good cohesive flow in the floor plan. That I really want to like when there's a furniture put in the middle of the room and it is not placed right, like that irks me. And I'm like, can I fix it really quick and make sure that the flow is right? Yeah, definitely that. And the second thing is when they're not maximizing the occupancy. I think there's a lot of money left on the table if you're not maximizing the occupancy. There are a lot of strategic ways where you know, if the master primary bedroom is big enough, you can put a king bed with a pullout couch on the side. So you're counting four person. There are these common areas that you can put again pull-out couches in, the optimization of how do you want to put king beds versus bunk beds? So I just feel like, and again, you don't have to slam occupancy. Some people they do the reverse, right? They try to put bunk beds everywhere, and then they're just uh, you know, stuffing people in. There has to be quite the balance where it doesn't feel like, oh my god, you just did it for a lot of people in it, but good balance where it feels like okay, it was thoughtfully intentional design.

Designing For How Guests Feel, Not Just How It Looks

Reshma Vadlamudi 21:54

Okay, so what makes a stay memorable beyond just looking pretty? What sensory or emotional elements do You deliberately design for?

STR Design Vs. Boutique Hotel: A Completely Different Problem

Ishita Nagda 22:02

I think in our studio, we are definitely moving from how to make the space look good to how to make people feel good. That is definitely going in that direction. Guest experiences is at our our topmost priority. You know, the minute you enter, how are your eyes getting big and lit? And are you feeling like wow, those aha moments we are trying to create? The feel of materials, right? It could be sensory, it could be sense of smells, uh, probably having fragrances around that that would just again elevate that experience for the guests. So, all of that that we are definitely trying to imbibe in our uh studio. Again, it is like it's a mix of all these things that come together. The example that we gave again uh earlier, Fly Me to the Moon, was a recent project of ours that went live probably a week and a half ago, and a client probably messaged me with her first guest who checked in, and the review that the guest left was a two-page review, and she was ecstatic. She was like, I've never seen a two-page review because she was like, you know, she was raving about the house the entire weekend that was there, but the review did not come in, so she was panicking. What's happening? But she lit the guests literally took the time to write each and everything of how they felt throughout their stay, and she did not miss a thing from fully stocked kitchen to how you know the basement felt to how the bung beds felt, how the outdoors felt to her, like what all amenities they enjoyed. Each and everything was literally described in that review, and that's what makes our jobs so fruitful, yeah. Right. So that we are targeting the guest experience, and that's what we want.

Reshma Vadlamudi 23:38

Yeah. Do you approach STR design differently uh from the boutique hotels?

Ishita Nagda 23:43

Um absolutely. I mean, they are two complete different boutique hotel is a complete different beast altogether. It is not like an ST STR is definitely different than a primary residence design because here you're not only thinking about one family and the way they live, you are thinking of multiple families, guest avatars, who you're catering to. It could be family, it could be group of you know, retreats, church retreats, group of friends coming together, or you're just looking at like a tiny home where a couple's getaways is happening. So you're designing with that lens, but it's still for that particular group, right? But in a boutique hotel, you are designing for multi-people altogether, multiple people altogether with different rooms. Now these common spaces change because it's not just one family or a group who are comfortable with each other, but the these are unfamiliar faces and interacting in that common space. So, how do you design around that? And it it is in the commercial realm too. So the all the codes and the building codes are different to abide by as well. And then again in boutique hotel, it depends. Are you in that 15 to 20 or are you into that 40 plus homes, uh rooms? Um, are you having a full-fledged chef's kitchen? Uh, are you catering to that commercial kitchen? Are you having a restaurant? Uh, so the entire scope is completely different. You're catering to, for example, if you have your rooftop, you are now catering not only to the hotel needs, but you're also thinking about the surrounding vicinity where they can probably rent that space and have their event spaces out there. So, again, it's like the whole clientele is different. You're literally thinking on a broader lens and not just like one particular group of people.