Best way to finance home improvements

[cindycindy]

Our bathrooms and kitchens are dated, and it appears that we will need to do some updates in order to sell the home. We're actually fine with the way the house is, but it would probably be a good investment to update the kitchen, floors and baths for re-sale. When we first moved to the house (in the 90's), we put a new kitchen counter in, tiled floors, and painted the existing wood kitchen cabinets white. Now, it looks like we may have to do more extensive renovations. So, what would be the best way to finance these improvements:
1. Take out a home equity loan for 5 years (current rate = 4%)
2. Take out a loan from 401K (current rate = 5%)
3. Withdraw funds from Roth or IRA (spouse is 61 y/o so no penalties) (last year's return on investments was around 9%)

It seems to me that going for the home equity loan would be the best idea. However, I loathe the idea of being in debt and am almost tempted to withdraw funds from roth or ira, but the opportunity cost would be too great (maybe, we're mostly invested in a target fund with underlying index funds.) On the other hand, we both took a cut in pay recently and it would be tight to have that monthly bill for the home equity loan. Any thoughts or other ideas? What would you do? Thanks!

[Teacher Terry]

I would bring in an experienced realtor and let that person help you decide if you even need to do improvements. Not everyone will like what you do. My experience has been that painting, cleaning and decluttering are the major things that need to be done. WE did replace a kitchen floor because it was in bad shape before selling. I would ask him what you could get before and after the improvements because it may be a $ loser. I know someone that put in a new kitchen just to have the buyers rip it all out. It was expensive but not to their tastes.

[Tybee]

I would bring in an experienced realtor and let that person help you decide if you even need to do improvements. Not everyone will like what you do. My experience has been that painting, cleaning and decluttering are the major things that need to be done. WE did replace a kitchen floor because it was in bad shape before selling. I would ask him what you could get before and after the improvements because it may be a $ loser. I know someone that put in a new kitchen just to have the buyers rip it all out. It was expensive but not to their tastes.

I agree with Teacher Terry 100%!
If you want to give the buyer an incentive, offer cash back at closing--like "you get 10,000 back to update kitchens and baths" or whatever you were going to spend. That way, they can get what they want, and you are not out the money.

[iris lilies]

I agree with Teacher Terry 100%!
If you want to give the buyer an incentive, offer cash back at closing--like "you get 10,000 back to update kitchens and baths" or whatever you were going to spend. That way, they can get what they want, and you are not out the money.

How does this work if someone (the majority of people) is getting a mortgage? If the buyers agree to pay the seller $100,000 with the sellers kicking back $10,000, can that actually take place? Will the house have to appraise at $100,000? Aren't you playing banker by giving construction loans? I don't know how this pans out.

Anyway, sound like the OP has already had property on the market for a while. Refreshing the listing by taking it off the market, doing some simple cosmetics, then pricing it right, might do the trick.

[Tybee]

How does this work if someone (the majority of people) is getting a mortgage? If the buyers agree to pay the seller $100,000 with the sellers kicking back $10,000, can that actually take place? Will the house have to appraise at $100,000? Aren't you playing banker by giving construction loans? I don't know how this pans out.

Anyway, sound like the OP has already had property on the market for a while. Refreshing the listing by taking it off the market, doing some simple cosmetics, then pricing it right, might do the trick.

I did it with my investment house in SC and it worked fine; gave the buyers 10,000 back at closing because they wanted a new roof and something else, I forget what. There was no problem with the mortgage, and the house appraised out higher than what they were buying it at, and it was going to be insured with a new roof, which helped quite a bit.

I bought a house with a rebated amount in Illinois; they paid me 2500 back out the cost to do some foundation work, and it worked fine then too.

[iris lilies]

I did it with my investment house in SC and it worked fine; gave the buyers 10,000 back at closing because they wanted a new roof and something else, I forget what. There was no problem with the mortgage, and the house appraised out higher than what they were buying it at, and it was going to be insured with a new roof, which helped quite a bit.

I bought a house with a rebated amount in Illinois; they paid me 2500 back out the cost to do some foundation work, and it worked fine then too.

Do you actually give them the cash back? So, they can either

1) keep the cash and not do the upgrade
2) use the cash for the upgrade

I'm of sure if I register the difference between

a. selling them the house at $90,000 with no cash back, or
b. me selling them the house at $100,000 with $10,000 cash back.

But it is one of those things about which that DH would probably say "dunderhead, if you don't give them cash to do the repair they cannot do the repair because they don't have any way to pay for it.

[Float On]

I like Tybee's idea.

I see listings all the time that say "great house ready for your personal updates". Spin it and don't waste the money, time, energy.

[cindycindy]

These were exactly my thoughts. My heart & wallet are not into doing these renovations. However, our house has been on the market. We've had at least 40 showings. We lowered the price very much below market to entice buyers, but it seems buyers want the house to be in move in condition, and don't want to do any work when they move in. Which is why we're considering doing the updates and then wait a few more years to sell. Boy, things are different than the last time I bought a house. Anyway, thanks for the feedback.

[catherine]

These were exactly my thoughts. My heart & wallet are not into doing these renovations. However, our house has been on the market. We've had at least 40 showings. We lowered the price very much below market to entice buyers, but it seems buyers want the house to be in move in condition, and don't want to do any work when they move in. Which is why we're considering doing the updates and then wait a few more years to sell. Boy, things are different than the last time I bought a house. Anyway, thanks for the feedback.

I sold two homes in the past decade and I agree that these days homeowners don't want "fixer-uppers." Our realtor told us that when we sold MILs house, which was on the market for 3 years until we put about $15,000 into it (refinished wood floors, basic painting of the whole house, a few other minor cosmetic fixes).

My other example of this is:

I live in a neighborhood in which there are 5 basic home models. My BIL lives in one and there is cookie cutter version 4 doors down. The other house has the original bathroom/kitchen, but has nice curb appeal and a two-car garage. BIL's house only has a one-car garage, so-so curb appeal, but we redid the bathrooms and kitchen, and replaced vinyl floors with bamboo and replaced the aluminum sliding doors with wood French doors.

The other house has been on the market for months and has decreased the price twice. My BILs house had two solid offers within a month.

If you don't care how long your house is on the market, just offer a few bucks at closing. But in my experience, a) people buy with their emotions, and b) very few have imaginations--so they need to see the vision. You'll sell your house quicker if you make those improvements, IMHO.

If it were me, I would try to come up with a few thousand to update as much as you can. I wholeheartedly agree with consulting with a GOOD realtor to find out exactly which improvements are going to give you the best bang for the buck. Our realtor is great--she gave us a checklist of improvements to consider and what to expect if we a) did nothing, b) put in some cosmetic improvements, c) went all in and fixed everything. We went with "B" (although we had already updated the kitchen when MIL moved in in 2007) and we achieved the top of the range of her projection.

People are busy today. They just want to move in.

[Teacher Terry]

Well I would do just enough then to entice a buyer but don't get carried away.