Pauly's remodeling the 3-story home. The stand-up comic now owns the property after Mitzi transferred it to him before she died.

The house is located directly behind The Comedy Store on the Sunset Strip. The renovations include vaulted ceilings in the bedrooms and extending the deck. The house needs updating -- both cosmetically and internally, and that's why Pauly's also upgrading the stuff you can't see, like plumbing and wiring.

Sources close to Pauly tell TMZ ... he's not sure what he's going to do with the home after the remodel, but it clearly needs a lot of love.