So you want to convert that back closet into a bathroom? Redesign and repave your driveway? Get a new roof and new windows? Well, as you know, that's going to cost you -- a bundle. Fortunately, there are a variety of ways you might pay for it. This topic was recently addressed on our Building and Maintaining a Home discussion board, when Fool Community member quinapalus2 explained that he needed $400,000 to overhaul his home and was considering taking out a 6.625% mortgage on it. He wanted to know "where to put the cash to get the best interest on it while paying the contractor over eighteen months." Read the whole discussion, or check out these snippets:
- FlyingDiver said, "Just get a HELOC [home equity line of credit]. You can do it to the tune of 80% LTV [loan to value, meaning the value of the loan in relation to the value of the collateral] with no problems. That way you only need to pay out as you need it. After it's all done, you can (if necessary) refi it into a fixed rate loan."
- Regarding where to invest the borrowed sum, ptheland suggested, "I'd think something like ING would be good. I think they're paying about 5% right now for a straight savings account. No hassles with CDs and hoping you get them coming due at the right time." He also added this critical point: "You didn't ask, but I'll also suggest having a 10% cushion for cost overruns that your contractor knows about. Then keep another 10% to 15% on top of that, but don't tell your contractor about that cushion."
- CathCoy concurred with the last point, noting, "Having just completed three remodels (well, the third is almost done), I can tell you that you MUST keep control of costs, and only YOU can do that. Get a firm contract, complete with SKUs for the materials used, a timeline -- make the contractor pay YOU if he runs over -- and use change order forms for even the smallest deviation from the plans." (Click into the discussion for some resources she offered.)
Keep in mind
Remember that most remodeling projects won't give you a net gain. In other words, if you spend $30,000, it isn't likely to increase the value of your home by the full $30,000. So if you're only planning to remodel to make a greater profit when you sell, think twice. If you want to enjoy a spruced-up home and eventually recoup some of what you spent, then more remodelings might make sense. Learn more and get some examples in this article.
Also note that you might put the money in question to better use. If you don't borrow it in the first place, it can keep working for you, in your brokerage account, savings account, or CD. If you don't take out a loan, you won't be facing payments that put a crimp in your investing. Step back and look at your big picture. Sure, you might want to remodel, but is your saving and investing for retirement on schedule? Have you been saving sufficiently for Junior's upcoming college expenses? Can you really afford to remodel?
If you're interested in home-buying and selling issues, visit our Home Center, which features lots of money-saving tips on mortgages and other issues. You might also want to check out these articles, especially if you'll soon be buying a new home:
- Buying a House Is Easy!
- So You Want to Be a Landlord?
- Make Money as a Landlord
- 10 Things You May Not Know About Mortgages
Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article. She was tickled to learn recently about a four-story public bathroom in Chongqing, China, that features more than 1,000 toilets and is drawing tourists. Try any one of our investing services free for 30 days. The Motley Fool is Fools writing for Fools.