Best way to pay for home repairs

[aspiring]

We have about 50k worth of exterior repairs that we need to do this summer. I'm trying to figure out the best way to pay for this.

Some details:
Home is valued at $850k
Mortgage balance is $410 @3.65%

My options:
1. Refi existing mortgage to 30-year fixed at 3.75% with cashout of $50,000
2. Borrow $50,000 on HELOC at 2.75% (variable rate .5 below prime)
3. Fixed Home Equity loan, 30 year loan at 5.25% (may be able to find better rate)
4. Take money from my Roth IRA to pay cash.

I'm inclined to roll the dice with the HELOC, knowing that I have available money in my IRA if interest rates go nuts. Any advice?

[GrayGhost]

Take money out of your IRA? That is an option that, I assure you, will not be popular on this forum. The Roth IRA offers huge tax advantages, and the moment you take dollars out of it to fund repairs (that, I note, would fund a sizeable downpayment on a reasonably priced home) you're taking a step down a very slippery financial path.

Might I ask what repairs you are considering doing that cost $50,000? Furthermore, why are you living in a house worth $850k? Surely it would be financially wise to downsize--a lot--buy a place outright, and pocket the difference?

If you want to leverage the sale of your house by financing the repairs, that is a legitimate business strategy, and could be a very wise financial decision. But I don't suspect you'll find the idea of loving in an $850k house very popular on this site, unless you can truly afford it or aren't able to move for some reason.

[GrayGhost]

Ah, that makes sense now.

Anyway, I would still warn against taking money of your your Roth, if for no other reason that it can lead down a very slippery financial slope. IRAs are also protected from bankruptcy, so it's a really safe nest egg that I don't think should be used until the time is right and you're ready to FIRE.

Would you mind sharing some financial details of this property of yours? Rental income, expenses, the nature and extent of the repairs that must be done, et cetera?

[waltworks]

The place doesn't cash flow enough to fund repairs/maintenance?

Post more details. Something doesn't make sense here. You should be getting major monthly cashflow sufficient to pay for all kinds of things. Otherwise you should sell the place ASAP.

-W

[theoverlook]

Sticking to your original questions (man this forum is tough some times ;-), I would say: go with the HELOC.  $50k isn't that much money if you're talking really major exterior repairs.  You should be able to pay it off relatively quickly from cash flow right?

Do not take it from your IRA, especially with the 2.75% heloc alternative, but even without that alternative I would avoid the IRA withdrawal at almost any cost, for reasons others have already given.

If you think you won't be able to pay off the $50k before interest rates go nuts then I would do option one, the refi with cash-out option.  That's the second least bad option.

[math-ya]

50k? thats a ton of money. i think we need more details here.  sounds like an opportunity to build some sweat equity.

[ShoulderThingThatGoesUp]

If that place meets the 1% and 50% rules as I understand them it should cash flow $51k/year, right? I guess that's what waltworks is pointing out.

[arebelspy]

If that place meets the 1% and 50% rules as I understand them it should cash flow $51k/year, right? I guess that's what waltworks is pointing out.

And besides that cash flow, a large part of the 50% rule is for maintenance and capital expenditures--and setting aside money for reserves in years they don't occur to have the money in years that they do.

So even besides the cash flow it should be generating, it should be generating money above that for these type of expenses.

So that's what I'd do - stick aside that money for the next few months, along with the profits.  Should get you close to just cash flowing it.

[waltworks]

Yes, my point was that an "income producing" multifamily property, reasonably managed, should be throwing off plenty of money to pay for any maintenance needed.

My guess is that, in fact, this property is an income-destroying one, but who knows.

-W