$30k home reno purchase --> alternative ways to pay for it?

[surfer349]

Looking for advice here. I've got a big purchase coming up (hard wood floors) ~$30k. Looking for interesting advice on ways to finance this other than just writing a check.

I certainly can move stuff around and write a check for it but wondering if there's a better arbitrage out there, or sign up for a bunch of credit cards and churn it for points?

I've got a
- healthy 401k at Fidelity (no margin account setup yet)
- large HSA invested at Fidelity (receipts for ~$25k in healthcare over last 10 years that have not been reimbursed)
- several large IRA's at Vanguard (no margin account setup yet)
- large crypto account (could be loaned against)
- healthy after-tax MMA at Vanguard  (no margin account setup yet)
- large CashValue Whole Life policy to loan against (policy loans @ 4%, Direct Recognition, 3.35% dividend = 0.65% net rate)
- Large HELOC to loan against (3.25%)


Any advice? I'd love to work out some interesting strategy.

[dandarc]

You typically cannot borrow against retirement accounts with a margin loan, so your 401K and IRA options as written are non-starters. You might be able to borrow from the 401K directly, but that would normally be more expensive than any of the interest rates shown below - the "interest" is not the amount you pay back to yourself on a 401K loan, but the investment returns you forego until the loan is repaid.

HSA is my favorite account - I'd want to let that ride if I had other options up to and including low-interest debt to fund this, which it appears you do. So I wouldn't do that one.

Crypto - I'd sell it all and buy the floors and invest whatever is left into a diversified portfolio, but I'd also never own the stuff in the first place. I assume you view the crypto as an investment so for similar reasons for "no 401K loan, no taking from HSA" probably you want to keep it.

Why would you borrow against a money-market account? If you're funding purchase from there just pay cash. Vanguard's money-market account is low-yielding like everyone else's.

Don't know enough about whole-life and loans against policy - this is another "why do you have this?" for me. Cursory analysis though - seems the 4% rate is what matters from my limited understanding - I think you'd get that dividend whether or not you borrow so netting that out is not a good way to look at it. But whole-life is not up my alley so this might be completely wrong.

HELOC is a fine option, usually an adjustable rate loan so make sure you're comfortable with the terms or find a way to lock in your rate.

Couple of other possibilities:
Take this as an opportunity to cash-out refinance the house if you can get a better rate than you currently have. Buy your floors and invest whatever is left over.

Look into financing through whoever is selling you the floor - you might find something like 5 or 10 years at 3% fixed or whatever. Or even 0% for a year or two, which likely beats paying cash but is worse than borrowing at 3% for 30 years if you can.

And the most mustachian option - find a great deal on materials and install the floors yourself. Or just live with whatever floors are already there.

[sonofsven]

Will they take a credit card?
Cash bonuses are nice, of course then you'd need to "write a check" (sic) eventually. But a lot of cards right now have a bonus plus no payment/interest for 12 month language.
Right now I have a Chase Ink with a $7500 spend for a $750 bonus that I'm working on.
Or there's cards that give up to 5% in miles, or cash back, for spending categories (small business, home improvement, etc)
Maybe split it into three cards? Or fill up one card for the bonus and pay the rest?
If the floor supplier will charge you to use the card (2% is common and what my lumber yard charges) then you'll need to use a card that has at least a 2% cash back unless it has a really nice bonus.

[ChpBstrd]

I agree with @sonofsven. Nothing pays like CC rewards. Immediately after this spending, roll the balances into another card if you can get no transfer fees and 0% interest for 6mos/1year. The longer you can play that game the better!

@dandarc also makes a good point that this huge purchase might justify a mortgage refinance, especially if you can get a lower rate.

But overall... HOLY SHIT... Thirty grand to change the look of the surface you're walking on? If you're not already retired and a multi-millionaire, I have to ask what makes this particular luxury worth a year or two of labor at a job? It will be a year or two after accounting for 5-7 years of missed market appreciation.

If you're having an entire 1500sf house wooded at $20/sf, consider asking the floor store about "cabin grade" floating hardwoods, which have knots and the occasional scratch (Guess what, so will the premium Brazillian rainforest cherry after a year or two!). I DIY'ed most of my old 1600sf house and paid less than $5/sf. Because they are floating and don't have to be nailed or glued, installation is about 3x easier. If you can run a chop saw, use a ruler, undercut door frames, and nail down quarter round you can do it and pay yourself $20k for those two weekends.

[surfer349]

UPDATE

- so there's a 3% CC fee...ouch.

- there's no seller financing

So that leaves either:
- paying cash
- CC +3% immediately
- HELOC @ 3.25%
- Life Insurance Loan @ 0.65% (net)
- setup a margin account with my after-tax accounts

[FLBiker]

If you're having an entire 1500sf house wooded at $20/sf, consider asking the floor store about "cabin grade" floating hardwoods, which have knots and the occasional scratch (Guess what, so will the premium Brazillian rainforest cherry after a year or two!). I DIY'ed most of my old 1600sf house and paid less than $5/sf. Because they are floating and don't have to be nailed or glued, installation is about 3x easier. If you can run a chop saw, use a ruler, undercut door frames, and nail down quarter round you can do it and pay yourself $20k for those two weekends.

Thank you for this!  I'm filing this away for the future -- I've got carpet in my office (the rest of the house is hardwood) and I plan to pull it in the next year or two.  I was thinking I'd replace with carpet, but I like this idea.

UPDATE

- so there's a 3% CC fee...ouch.

- there's no seller financing

So that leaves either:
- paying cash
- CC +3% immediately
- HELOC @ 3.25%
- Life Insurance Loan @ 0.65% (net)
- setup a margin account with my after-tax accounts

Personally, with these options, I'd probably just pay cash.  The life insurance loan interest rate sounds good, but I don't really have experience with that.  Regardless, I'd definitely explore the method @ChpBstrd mentioned above to do it DIY.

[Paper Chaser]

Ignoring the fact that a $30k flooring purchase is insane, I'm voting to keep it simple. They are floors. No reason to jump through a bunch of hoops or add stress. Cut the check and be done with it. It's going to be painful, but paying that much for fancy floors should be.

[effigy98]

I use 401k Loan to fund real estate. I pay myself the interest... win win. I have started using M1 finance loans as well. 2.5% and sometimes even 0% promotional offers. Insane times. It is hard to not make money in this environment. The hard part is making enough for inflation adjusted dollars. I feel bad for all the people sleeping on inflation and thinking their S&P 500 is keeping up with real inflation.

[surfer349]

I use 401k Loan to fund real estate. I pay myself the interest... win win. I have started using M1 finance loans as well. 2.5% and sometimes even 0% promotional offers. Insane times. It is hard to not make money in this environment. The hard part is making enough for inflation adjusted dollars. I feel bad for all the people sleeping on inflation and thinking their S&P 500 is keeping up with real inflation.

can you tell me more? don't you have to liquidate your 401k and take it out of the market to 'take a loan'? what is M1?

[dandarc]

I use 401k Loan to fund real estate. I pay myself the interest... win win. I have started using M1 finance loans as well. 2.5% and sometimes even 0% promotional offers. Insane times. It is hard to not make money in this environment. The hard part is making enough for inflation adjusted dollars. I feel bad for all the people sleeping on inflation and thinking their S&P 500 is keeping up with real inflation.

can you tell me more? don't you have to liquidate your 401k and take it out of the market to 'take a loan'? what is M1?

M1 is one of the big brokers people interested in margin loans tend to use - another being interactive brokers. You're correct about 401K loans, plus you typically have to pay those back in full in short order upon leaving employment. While you might pay 4% (or whatever your 401K loan interest is) to yourself instead of the bank, you're unplugging investments that you're likely expecting significantly higher rates of return on, so on the net you're losing money based on expectations - obviously actual results can vary substantially, although the last several years would have overall been a really bad time to pull money out of stock investments for significant time frames.

If you're serious about borrowing on margin against your Vanguard investments, you really need to consider moving to another brokerage - margin interest rates at Vanguard are pretty high, as much as 8% right now. You don't need to necessarily move away from Vanguard funds & ETFs for this - just you'll probably get much better terms if you hold them at another brokerage. https://investor.vanguard.com/client-benefits/margin