Author Topic: HELOC For Primary Residence Upgrade?  (Read 1744 times)

kroozin

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HELOC For Primary Residence Upgrade?
« on: May 13, 2019, 03:34:52 PM »
I'm curious to get the MMM thought on if it makes sense to take out a HELOC (or something similar) on my house to make some key upgrades that I believe would also improve the value of my primary home. A few details on my situation:

- Currently have some student loan debt, but aggressively paying it off while also investing, should be debt free in about 2 years
- I bought the home about 8 months ago, so I only have about $7k in equity (if you use the price at time of purchase, according to Zillow it's gone up another $15k in value, but not sure how accurate that is)
- The main area in need of updating is the kitchen - It's 50 years old and the cabinets are heavily sagging in some areas (particularly under the sink)
- I have no intention of moving any time soon, so I'll be here at LEAST another 5 years.

My thought is that it would be a net positive to increase the house value and I'd like to actually enjoy the update while I still live there. But I want to make sure it makes sense financially to do something like this.

Any thoughts/feedback is appreciated, and let me know if more information is needed to provide good advice, I'm new to this whole thing!

jps

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Re: HELOC For Primary Residence Upgrade?
« Reply #1 on: May 13, 2019, 04:58:58 PM »
You need a face punch!!! You are surely kroozin for a bruisin (see what I did there?)

I don't think anyone on the MMM forums will tell you to borrow money from your house while you have debt, and while you are only $7K from being underwater.

Nah! Get out of debt, and then pay for a kitchen update with the money that you have. Borrowing money is a suckers game.

(Maybe someone in the DPYM club can comment, I'm not sure how they feel about HELOCS)

Telecaster

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Re: HELOC For Primary Residence Upgrade?
« Reply #2 on: May 13, 2019, 08:43:09 PM »
Most home updates do not make strict financial sense.  That is, they usually cost more than they add value.   There are some exceptions and it is dependent on the local market, blah, blah, blah.  Borrowing the money makes the upgrades more expensive, so they make even less sense financially. 

That said, things like kitchen upgrades are a lifestyle choice.  So that's up to you to answer if it makes sense in that regard.   

Another Reader

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Re: HELOC For Primary Residence Upgrade?
« Reply #3 on: May 13, 2019, 08:50:15 PM »
You can't get a HELOC, because the loan requires you to have substantial equity.  You don't have that.

This is not a good idea anyway.  Find a way to make the kitchen work until you have paid off your other debt and can afford to cash flow the repairs and upgrades.  If there is damage from a water leak that's causing the sagging, fix the leak and shore up the cabinets.

Abe

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Re: HELOC For Primary Residence Upgrade?
« Reply #4 on: May 13, 2019, 08:59:06 PM »
Are the cabinets sagging due to the floor, or the countertop is sagging? If it's the floor you may have a joist that is rotting or foundation breakdown that needs assessment. Hopefully the inspector would've caught that...

Otherwise, the countertop could be reinforced with 2x4s and plywood.

Just some thoughts on how to cheaply repair it.

kroozin

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Re: HELOC For Primary Residence Upgrade?
« Reply #5 on: May 15, 2019, 11:54:49 AM »
I dug into this a bit more and I'm not surprised at the reactions, it just doesn't seem to make financial sense. I've attached a picture of the counter sagging I mentioned, but although it's annoying it hasn't really had that big of a functional effect on anything so I'll probably just leave it be for now.

The funny thing is comparing responses between groups. I asked a family member for her opinion and the response was, "You're young and have plenty of years to invest, investing in your house in the short term is very good too". A year ago I probably would have just blindly listened to that advice :)

The thought process originally was, "if it adds value and I'm going to do it eventually, I might as well be able to enjoy it while I'm living here", but it doesn't seem to add enough value to make up for it anyway. I'll just keep staying the path, thank you for the advice!

The_Big_H

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Re: HELOC For Primary Residence Upgrade?
« Reply #6 on: May 26, 2019, 08:45:01 PM »
If its not water damage causing it, then shore it up temporarily as previously noted.

Also, the student loans.... consider that your financial house being on fire, and put it out with your full money hose, NO diverting to investing (we can debateup-to-company-match, but certainly no more than that). until the student loan fire is point out.

You say you have 7k in equity, so I'm guessing this was bought with 3.5% or less down?, thus there is PMI involved...  after the student load fire I'd get a small/medium emergency fund going ($3-6k) THEN house paid down until PMI goes away, THEN fill up the emergency fund ($10-20k), then start investing more, then saving for expensive home improvement.

Each step will get easier, as your money hose will increase as you take care of bills (no more loans = loan payment freed up), provided your lifestyle does NOT change (or only minimally).

Unless you are DIYer and can do it on the cheap then maybe bump it up early
... and by the way, when you own a house... you'd BETTER become a DIYer or its going to get expensive quick... Ive got my dryer in pieces at the moment to test which part is causing it to not heat.... you'll have enough work to do on a house thats "essential" versus "remodeling".

J Boogie

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Re: HELOC For Primary Residence Upgrade?
« Reply #7 on: May 28, 2019, 02:21:56 PM »
I would be on the lookout for free/nearly free materials like plywood, countertops, sinks, hardwoods, leftover paint, etc. Same with tools if you don't have tools yet. If you go with painted cabinets you can piece together a variety of species and it won't make a difference. You can buy quality offcuts and shorts from local cabinetmakers, they are always looking to get rid of offcuts.

See if you can remodel your kitchen for under ~ $400 in materials and under ~ $400 in tool acquisitions.

Your house seems ripe for some DIY learning (doesn't look like a $500,000 house that isn't worth the risk).


SwordGuy

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Re: HELOC For Primary Residence Upgrade?
« Reply #8 on: May 28, 2019, 08:58:12 PM »
This is definitely a DIY opportunity.

Try putting some shims between the countertop and the cabinet where it's sagging.  That might be a quick fix.  If not a few boards or brackets on the inside of the cabinet may be enough to solve the sagging problem.

If you can fix the sagging problem, you can refinish the cabinets super easy.   A couple of new guide rails where the drawers hang a bit wonky (or just tightening up the guide rail screws) will get them working better.   

Depending on how the drawers are made, it may be super easy to replace the cabinet doors and drawer fronts if you don't like the way they refinish. 

A new formica countertop is pretty easy to install if you don't have wonky angle to deal with.  If you do, I recommend using plywood and attaching formica sheets to it.   


These are all pretty easy things to do.


PDXTabs

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Re: HELOC For Primary Residence Upgrade?
« Reply #9 on: May 28, 2019, 09:57:59 PM »
Also, the student loans.... consider that your financial house being on fire, and put it out with your full money hose, NO diverting to investing (we can debateup-to-company-match, but certainly no more than that). until the student loan fire is point out.

The OP never said what their interest rate was, that I can tell. So, why this advice? My student loans were sub-3% and tax deductible. Why would I prioritize that?

Malkynn

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Re: HELOC For Primary Residence Upgrade?
« Reply #10 on: May 29, 2019, 05:56:35 AM »
Also, the student loans.... consider that your financial house being on fire, and put it out with your full money hose, NO diverting to investing (we can debateup-to-company-match, but certainly no more than that). until the student loan fire is point out.

The OP never said what their interest rate was, that I can tell. So, why this advice? My student loans were sub-3% and tax deductible. Why would I prioritize that?

Agreed, my student debt is at such a low interest rate, I really don't worry about it.

That said, I think taking out a HELOC to reno a place is fucking insane.

OP, don't worry about the advice you get from people, most people are in debt and terrible with money, so popular opinion on whether or not to finance a reno should not only be ignored, but vaguely seen as the likely opposite of what you should consider.

If your student debt interest is low, then it's not necessarily hair-on-fire, but you are still broke. As long as you have debt, you are broke and have no money, you only have debt.

Now, that doesn't mean that you have to live absolutely miserably until you have money, it just means that you have to view all spending from the "I'm broke" perspective.

Would you take on debt to reno a kitchen if you were a low income grad student? Obviously not. However, you might save up and do a fresh coat of paint or buy a decent sofa to make your home pleasant.

I also just bought a new home, the kitchen is hideously dated and I will eventually do something about it, but not until my debt is gone and I actually have a bunch of money to do so.

Plus, I believe in living in a space for awhile before committing to permanent changes. I've lived in so many homes and it takes time to get to know it and figure out it's flow.

Until then, I am painting and buying some amazing furniture, and will consider a new laminate countertop and new sink because the existing sink is tiiiiiiiiny, but we'll do the work ourselves.

So like others, I recommend that you determine the cause of the sag, do what you can to remedy it, and just live there for awhile before deciding what you want/need to change.

It's weird how intense the need to perfect a place feels when it's new and how unimportant these things can feel once you are comfortable in a place and familiar with it.

J Boogie

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Re: HELOC For Primary Residence Upgrade?
« Reply #11 on: May 29, 2019, 08:00:45 AM »
Also, the student loans.... consider that your financial house being on fire, and put it out with your full money hose, NO diverting to investing (we can debateup-to-company-match, but certainly no more than that). until the student loan fire is point out.

The OP never said what their interest rate was, that I can tell. So, why this advice? My student loans were sub-3% and tax deductible. Why would I prioritize that?

Agreed, my student debt is at such a low interest rate, I really don't worry about it.

That said, I think taking out a HELOC to reno a place is fucking insane.


I disagree with that as a blanket statement.

Consider two scenarios that yield the same result of a beautiful $300,000 home in a medium COL city:

1 - Buy a $300,000 home

2 - Buy a fixer upper for $180,000 and slowly improve it with DIY friendly projects, spending about $20,000 over the course of 3-6 years. Then utilize a HELOC to do some more serious professional style remodeling to the tune of $50,000.

The HELOC just helped that hypothetical homeowner get the same (or better, given they were able to choose finishes to their standard and preference) quality home for $50,000 less.


Malkynn

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Re: HELOC For Primary Residence Upgrade?
« Reply #12 on: May 29, 2019, 08:06:01 AM »
Also, the student loans.... consider that your financial house being on fire, and put it out with your full money hose, NO diverting to investing (we can debateup-to-company-match, but certainly no more than that). until the student loan fire is point out.

The OP never said what their interest rate was, that I can tell. So, why this advice? My student loans were sub-3% and tax deductible. Why would I prioritize that?

Agreed, my student debt is at such a low interest rate, I really don't worry about it.

That said, I think taking out a HELOC to reno a place is fucking insane.


I disagree with that as a blanket statement.

Consider two scenarios that yield the same result of a beautiful $300,000 home in a medium COL city:

1 - Buy a $300,000 home

2 - Buy a fixer upper for $180,000 and slowly improve it with DIY friendly projects, spending about $20,000 over the course of 3-6 years. Then utilize a HELOC to do some more serious professional style remodeling to the tune of $50,000.

The HELOC just helped that hypothetical homeowner get the same (or better, given they were able to choose finishes to their standard and preference) quality home for $50,000 less.

Sorry, I meant that I think that OP taking out a HELOC for his home reno is insane. I wasn't intending it to be read as a generalization, but I was sloppy with my language.

wageslave23

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Re: HELOC For Primary Residence Upgrade?
« Reply #13 on: May 29, 2019, 08:30:13 AM »
Even if you don't have to finance home improvements, remember there is an opportunity cost.  If you spend $10k on a home improvement 5 years earlier than you would have before selling the house, it will cost you roughly $500/yr in lost investment income.  I go through the mental calculation on all home improvements on my current house even knowing that I will eventually do them before selling and usually they are not worth it.

RWD

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Re: HELOC For Primary Residence Upgrade?
« Reply #14 on: May 29, 2019, 08:48:28 AM »
(Maybe someone in the DPYM club can comment, I'm not sure how they feel about HELOCS)

I also think this is a bad idea. Low interest debt is not a good excuse to take on as much debt as possible.

J Boogie

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Re: HELOC For Primary Residence Upgrade?
« Reply #15 on: May 29, 2019, 02:30:25 PM »
Even if you don't have to finance home improvements, remember there is an opportunity cost.  If you spend $10k on a home improvement 5 years earlier than you would have before selling the house, it will cost you roughly $500/yr in lost investment income.  I go through the mental calculation on all home improvements on my current house even knowing that I will eventually do them before selling and usually they are not worth it.

True, because we're in investor alley.

But that's also 5 years of not living your best life :)

wageslave23

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Re: HELOC For Primary Residence Upgrade?
« Reply #16 on: May 29, 2019, 03:10:13 PM »
Even if you don't have to finance home improvements, remember there is an opportunity cost.  If you spend $10k on a home improvement 5 years earlier than you would have before selling the house, it will cost you roughly $500/yr in lost investment income.  I go through the mental calculation on all home improvements on my current house even knowing that I will eventually do them before selling and usually they are not worth it.

True, because we're in investor alley.

But that's also 5 years of not living your best life :)

Good point

mountainfamily

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Re: HELOC For Primary Residence Upgrade?
« Reply #17 on: May 29, 2019, 09:38:41 PM »
Hey, your kitchen looks WAY better than mine. You have a dishwasher!! We have a fixer-upper in a high cost of living area. I understand the desire to enjoy the kitchen now. Our furnace is right next to the stove (what "genius" thought that would be a good idea?), we have no dishwasher, little storage, limited counter space, need to re-plumb, etc. We think it will be even sweeter to have a nicely remodeled kitchen when we've saved up for it and done parts of it ourselves. It's a balance: we'll have 2 young kids by the time we've saved enough so we're going to have a contractor oversee the project and we'll do planning, shopping, finish work, etc. We're trying to adjust our priorities so we can save up faster.

blingwrx

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Re: HELOC For Primary Residence Upgrade?
« Reply #18 on: May 29, 2019, 10:28:51 PM »
As others have mentioned you barely have any equity and may not even qualify for a HELOC or much of one anyway.

The student loans i'd hold off on paying that off if the interest rate is low below 5%. Then I'd make sure to put money towards an emergency fund, at least 10k, enough to cover major house repair emergencies and/or at least 6 months expenses in case you lose your job.

The HELOC you could get quotes and have a line open for an emergency if you qualify for one. It should be a last resort emergency fund, definitely don't pull any money out for optional repairs. With a house that old there is going to be plenty of surprises, Leaking roof, new HVAC, major leaks or other major problems can set you back 10k+ easy for some things. Being a homeowner is not cheap. Once you've saved up enough to cover any disaster scenarios, then you can do the renovations.

Thinking about future home value now is nonsense when you're in debt and an emergency bill away from foreclosure or bankruptcy. if you plan to live in your house for a long time and have no future plans to sell you shouldn't even want your house to go up in value as you'll be paying more property taxes.

For my house I do a lot of the work myself. DIY is the way to go, I saved tens of thousands this way. Youtube and is your friend, it's quite easy to get step by step video instructions on how to do certain projects. Save the major things you can't do for the contractors. If the cabinet sag is from a bigger issue like a rotted floor joist below, I'd definitely call a contractor for that. The other stuff you can do on your own once the floor is good. Easy-medium tasks like replacing cabinets can easily be done on your own and you'll save a lot of money doing it yourself. Cabinets can be quite expensive though, so if you can salvage and repair the one you have i'd do that. It's amazing how fresh cabinets can look after sanding down and painting them and putting a new counter top.

freedomfightergal

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Re: HELOC For Primary Residence Upgrade?
« Reply #19 on: May 30, 2019, 08:26:52 AM »
Don't borrow for fancy pants kitchen! 

Looking at the picture of your kitchen, after increasing the support to fix the sag, I'd paint the cabinets a soft grey and change out the hardware.  It would be cheap to do yourself and easy.   Add a nice new hand towel or something else cheap and it'll feel new and fresh for a few years.

Also, post about wanting new countertop, someone may be throwing away dated granite or similar.  I see it all the time where I live.  People facepunch style updates could benefit you :)

Good luck

kroozin

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Re: HELOC For Primary Residence Upgrade?
« Reply #20 on: June 03, 2019, 04:47:11 PM »
Woops, forgot to check up on this thread for a bit. Thanks for all the helpful advice, a lot to digest here! I'm glad to see that my initial inclination about this not being a good investment seems to be the general consensus.

The student loan thing is something I've gone back and forth on CONSTANTLY over the past few months. On the one hand the interest rate is only 4.37%, which is fairly low. But on the other hand, it's a guaranteed return, and would free up ~$500 in cash flow each month. There's also the psychological benefit of being debt free (minus my mortgage), but I try not to take that into account for stuff like this. This is something I'll have to keep thinking over, but definitely appreciate the input.

Also, huge thanks for the DIY ideas! I'm probably the least handy guy I know, but I'm slowly starting to pick up some things as I do small projects around the house, plus I have friends that could likely help. I'm going to look into it and see what I can do!

PDXTabs

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Re: HELOC For Primary Residence Upgrade?
« Reply #21 on: June 03, 2019, 05:23:11 PM »
The student loan thing is something I've gone back and forth on CONSTANTLY over the past few months. On the one hand the interest rate is only 4.37%, which is fairly low. But on the other hand, it's a guaranteed return, and would free up ~$500 in cash flow each month. There's also the psychological benefit of being debt free (minus my mortgage), but I try not to take that into account for stuff like this. This is something I'll have to keep thinking over, but definitely appreciate the input.

I would pay it off then. My loan was ~2.3% which IMO is a different ballpark.

ZMonet

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Re: HELOC For Primary Residence Upgrade?
« Reply #22 on: June 05, 2019, 07:03:36 AM »
As others have said, I'd make do with what you have.  Shore up the sagging problem and then paint the cabinets.  The key to a good job is, and this is cliche, in the prep work.  Remove the door hardware and doors, clean and lightly sand (or use liquid sander) on everything, set up an area to paint the doors horizontally to limit/eliminate runs, and use a foam roller.  Consider replacing the door pulls, which might require you to fill in the existing holes with wood putty (fairly easy) if they are different dimensions.  A quality paint/stain works wonders.  I've had great success using General Finishes stuff.  You can Google General Finishes Espresso Gel Stain projects and see a ton of good work on the Internet.  If you want to go with something more modern, you can go with their General Finishes Queenstown Gray Milk Paint.  Here is a great tutorial using the gray: https://www.youtube.com/watch?v=92lfprYX8r8  She didn't remove everything or use a foam roller, but it will work better if you do.  You also might want to finish with a satin polyurethane for durability.  If you don't try and knock it out in a single day, you'll get great results for very little money.
« Last Edit: June 05, 2019, 07:19:36 AM by ZMonet »

talltexan

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Re: HELOC For Primary Residence Upgrade?
« Reply #23 on: June 06, 2019, 08:12:00 AM »
I don't know what area you live in, but here in the SE, all kinds of trades and building jobs are wayyy expensive right now because of increased demand. A good chunk of that is rebuilding after the hurricanes that passed through late last year. If you're committed to paying for this kind of update, waiting a year or two might get you a lower price.