Mustachians - see if you have a take on this. It's not a very mustachios situation, but it's a financial question, and I trust mustachians.
Caution: we are entering #richpeopleproblems territory on a steep grade waterslide, straight ahead...
This is not my issue either, it's my mom's...good times so far, thanks for reading.
-Mom owns a house, no mortgage. Value roughly $2M.
-Mom is 70, recently retired, single (widowed)
-Mom cares for and intends to leave an inheritance to support the lifelong care for special needs daughter, currently age 40, life expectancy is a complete wild card
-Mom's net worth is in the neighborhood of $5M: this house, inherited IRA from husband, her own IRA/401ks, partial ownership in real estate LLC
-Mandatory IRA distributions & social security begin this year and will roughly supplant previously earned income (she states she does not know if it will be more or less than previous salary). The situation is one where MBA meets anxiety disorder
-Special needs trust for daughter exists and is being left out of the discussion
Ok, the question!
Believe or not, this house, that honest-to-goodness could be sold for $2M in the next 30 days...and I bet I could get a cash contract at $1.8 in 24hrs...is in terrible shape. It's an original 60s tract home, 3bed/2ba with some wonky extensions and "upgrades" done by our beloved handyman. It's truly a wonder the skylights have not fallen down.
Mom wants to rehab the house. Sort of. Maybe my brother is strong arming her a bit on that. It was her parents house in retirement, is well-situated, and she's pretty attached to it. I have floated the idea of buying a different house, but that seems emotionally out of the question. My brother recently did a $600k upgrade to his house (which was my mom's before and which we grew up in and which she gave to him a couple years ago in very similar wonky-handyman shape.) He probably increased the market value of that home $1M by doing the $600k renovations, with the market obviously having moved up a bit in that year.
What the hell? Why is this lady posting this on an anonymous internet board??
Ok, now that that's out of the way:
My mom wants to take a 15yr mortgage to pay for the renovations to her house and she wants to cap the costs at $500k. She just met with the architect and got a ballpark of $700k for what she wants. The $500k scope seems dangerously unsatisfying (although in a way, how could that possibly be??)
It seems to be that all of the following are logical interpretations of this scenario and reasonable options to put on the table. My ask-a-mustachian question is, do you agree, and can you offer any alternatives/additions?
1. Consider trading houses. Find something with the natural light she's craving and that's already upgraded. Let some silly person buy this house and spend away on fixing/replacing it
2. Stay in this house, and go with the pricier rehab and borrow the money. Consider the balance sheet effects of this to be neutral, since the fixed-up house is likely to be worth at least as much as current value + cost of reno. Consider the interest costs to be like rent. This is the most likely to appeal to mom.
3. (Head explosion territory) Sell the house and rent? Investing $1.8M and drawing off 4-6% gives $6000-9000 per month.
4. Stay in the house and sell stock to pay for renovations. This is very hard to palate with the current market conditions
What have I overlooked, mustachians?