Best way to finance home improvements [Archive]

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cindycindy

4-20-17, 11:55am

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

4-20-17, 12:06pm

Tybee

4-20-17, 12:21pm

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.

Float On

4-20-17, 1:07pm

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

4-20-17, 1:34pm

Teacher Terry

4-20-17, 3:07pm

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

iris lilies

4-20-17, 4:44pm

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.

cindycindy

4-20-17, 4:57pm

Yes, IL, house has been on the market for 5 months; supposedly it's a seller's market here, but we're not seeing it. I think if we would be making a concession of $10,000, it would just be taken off the proceeds to us at closing. We have an offer on a smaller place (with a contingency based on the sale of our current house that expires in August), that upon inspection needed $3,000 worth of work. If all goes through, we as buyers get that $3,000 at closing. I'm in NY State; don't know if it works differently elsewhere.

Tybee

4-20-17, 6:50pm

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.

rosarugosa

4-20-17, 7:25pm

My sister gave the buyers of her condo $1000 towards replacement floors, so I think this is pretty common.

catherine

4-20-17, 8:01pm

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.

iris lilies

4-20-17, 8:30pm

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.

Gardnr

4-20-17, 9:53pm

I Yi Yi! NO...do not touch retirement accounts. You'll never get that compounding back. Count that money as untouchable except for it's intent!

Consider: No updates. You're not doing it for you so why do it at all? When/if you put it on the market, call it a fixer upper.

You won't get 100% of your investment out of "upgrades". What you upgrade to now, may be "out" when you put on the market. (granite is on it's way out). I think it's very risky to assume you know what a future buyer will want unless you're flipping it in the here and now.

That's my 2 cents.

Tybee

4-21-17, 8:24am

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.

In the Illinois deal I could have kept the cash and not done the upgrade, and it took me about 18 months to do the upgrade, but it did get done eventually.

I don't think they could have kept the 10k in the SC deal because of the insurance--but I really don't know how it worked, except that they got a check at closing for the amount.

There is no difference between you selling them the house at 90 with no cash back or selling them the house at 100 with 10k cash back except that you pay things like the commission on the higher number. Since it was an investment house, I had to pay SC taxes on anything I made on the house, so the 10k was subtracted from what I made, along with my expenses and my share of closing costs etc. etc.

We did lots of cosmetic things to the flipper, however, as I had hoped to keep it for myself, but my husband did not want to live there (it was a HUD house and I bought it without seeing it). We painted everything inside and the trim outside, power washed the brick, fixed what needed fixing (very little), added hurricane holes in the crawlspace, spruced up the landscaping, etc. It looked beautiful and it had offers at the first showing. It was a really nice little house; wish my husband had liked it. Had a wonderful screen porch, big live oaks, and two acres of woods behind it, with nesting owls. I could even bike to the Publix and Chinese food, my idea of heaven.

But the insurance took a real jump with the new FEMA maps, and it was on an island, so that was a downer.

pinkytoe

4-21-17, 9:57am

Sold our house as a FSBO and bought in another state this past year. Learned a lot about real estate and human behavior in the process. I think people have been mesmerized by HGTV shows and have high expectations. If I hear the phrase "open concept" one more time, I might gag. Both where we moved from and to, it is a seller's market and any home under $400K is sold within a few days. It seems that those that have not been updated mostly go for a reduced price to flippers or investors. They put some lipstick on them and turn into rentals. In Austin, they completely remodel and resell as a luxury home. When we sold ours in Austin, we gave the buyers a $3000 credit at closing (there is actually a line for that on form) since we bascially sold it "as is". I think how you choose to finance a remodel (or if) would be based on your income situation and age. A small home equity loan makes the most sense to me if you must do anything at all.

ToomuchStuff

4-21-17, 10:11am

Why do you need to move? Would you be fine if you did the improvements and the house didn't sell? (can you pay back the loan)
I agree on having the realtor give you a ballpark, before and after, but they aren't a contractor (you need prices from them as well). Won't do you any good if the realtor tells you it will sell for x (which it still may not), after doing y and you then find out a contractor says y will cost you 4x what you thought.
Do you have a list of other houses in your area, both sold and not sold? Why did or didn't they sell? (area dying, bad schools, etc) That might have a greater effect then you realize.

cindycindy

4-21-17, 12:05pm

Too much stuff, we live in a hot re market about 2 hours from a major east coast city where most of the buyers are either young people buying for a weekend home or to turn home to Airbnb or older people who no longer need to work in the city. Houses have sold for as high as $425 when perfect to around $380 with some updates. There's two houses in our neighborhood for sale. One is asking $425 and the other $378. We paid $145 for house in 1996 and would be happy to sell for 290m. We put a contingency offer (upon sale of our place) on a smaller place that would be less work for us but we don't HAVE to sell. When we first decided to sell, zillow had estimated our price at $380 so we figured , great, we have a lot of wiggle room. We're not greedy; we didn't do much on cosmetics but did maintain infrastructure items. Bring a simple liver, I never even watched HGTV,pinktoe, but you're right. It's the same thing with every show. Open concept, wood thoughout, island kitchen. I don't trust my own judgement. Things that I think look ugly 70's are now desirable mid century. We Installed white high quality tile in the 90's. Buyers hate them because they're square (not rectangle). Don't even get me started on the phrase "subway tiles". Another hgtv favorite. Anyway, thanks for reading my rant. We have to do something if we want to sell eventually (even if we stay put a few more years). And , gardnr, I agree that the funds on the retirement account should be off limits. I just remember the first house we bought (not this one). It was dated but it had good bones. When we bought a house, it was expected that we would do some work on it. I'm talking late 80's here. I guess hgtv and the home improvement industry have the good consumers well trained. Rant over
If I could figure out how to post a photo of my kitchen, it would be great to get some sane opinions.

Teacher Terry

4-21-17, 12:21pm

Tybee

4-21-17, 1:14pm

If the inside needs painting do that along with clutter removal, pack away family photos, thorough cleaning, make sure the curb appeal is good. These things will go a long way. We have bought and sold quite a few homes. People have trouble seeing themselves in your home if there are family photos. When we sell I pack a bunch of stuff before listing and put the boxes in the garage.
Great advice, Terry!

I actually rented a storage locker with my last house in Illinois and moved at least half of my stuff out--no boxes anywhere, light on the furniture, then repainted interior walls (3 kids and 3 dogs, lived there 4 years) and staged it so it had the charm of those tv houses--bought Dansk dishes, a linen comforter, etc. etc., and changed my one Marimekko wallpaper to a neutral grasscloth. But you honestly couldn't tell any kids lived there, and we had already bought the next house, so I shipped everybody to the new house and spent 5 days in overdrive.

That one sold in three days.

Oh, I also price aggressively, as in very, very appealing--I want to sell the house as quickly as possible as holding on to it costs me more than I would get shooting high and hoping to get lower. I sold last 3 houses this way; one of my SC houses was closed in 6 weeks from day we put it on the market. It wasn't worth screwing around waiting to see if someone bit at the higher price. But your circumstances may be very different.

When I worked for a realtor, her motto was first offer, best offer.

I am a big advocate of painting everything--I think the smell is subliminal makes people think it is a new house or something. I used Benjamin Moore white dove in last two mid century modern houses and it looked fantastic. Good color.

Teacher Terry

4-21-17, 1:51pm

Tybee, you have this moving and selling thing down to a science:)) The last few times we moved out before selling because with 4 dogs it would have been too hard. Our first offer has always been the best too.

cindycindy

4-21-17, 2:16pm

I heard that also, tt, re first offer is where you'll end up We did pack most of our stuff to decilutter and depersonalize. I love living so spartan like. My husband has emotional attachment to stuff, so if nothing else, this exercise has served a purpose because we have really downsized his stuff.

ToomuchStuff

4-21-17, 11:40pm

Another thought.....

What does the real estate appraiser think your house should be priced at, not what your asking. I knew of one situation where the house was priced low, because they wanted a quick sale. People stayed away, thinking if it is that low, there are problems with it.
They ended up selling the house and 90% contents to a gal I know, for her first house.

cindycindy

4-22-17, 9:38pm

ToomuchStuff, The real estate agent thinks we're priced to sell and that the price is what similar homes have been valued for bank appraisal purposes.

pinkytoe

4-22-17, 9:57pm

Kind of sad and funny but the house we sold in Austin last fall has gone up another $50K in appraised value since we sold it. I let it go for slightly below market to find just the right family who I thought would love it like we did. And then, just a month or so ago, I found out they are selling after only six months. So much for tying up emotions in real estate.

Tybee

4-23-17, 11:04am

Wow, Pinkytoe, that is something. I remember how you agonized during that process and for it to end up that way, with the "perfect family" becoming perfect profiteers-- wow. I will keep this in mind next time I sell a house.

Teacher Terry

4-23-17, 12:40pm

I have loved some of my houses better then others but once I decide to sell I don't care what they do with the property. I disconnect and try to get the best price we can. At that point it is all about the $.