Advice on how to finance home repairs to downsize

[SteveGo]

I am (mostly) retired.

I would like to downsize in the next few years, from our 2 story 3500 sq ft home to something more suitable for an aging couple. I am looking at foundation, roofing, and HVAC repairs to get the house ready to sell. These costs will be on the order of $30,000.

We live off of Social Security, part time work, and the PP. When needed, I draw cash down from the PP. I rebalance on the 15%-35% levels.

The house is free and clear, and we have no other debt. I am not in a big hurry to get the house sold, but I think for our peace of mind, it should happen in the next 3-5 years. I want to start on major repairs as soon as practical. Even with these repairs, I contemplate getting a significant amount of cash out of this deal, over and above the cost of the replacement home.

I can think of 3 options to finance the repairs:

1. Borrow the money from myself, from the PP. If the repair costs come out on the high side, this could put me into a rebalancing situation, or face being light on cash until the house is sold.

2. Take some cash out of my brokerage, via margin. My taxable account is at Interactive Brokers, and I can get margin at 1.56% for the first $100,000. I have ETFs and LTTs in that account. They margin LTTs at 9%, so I can easily get all the cash needed without getting close to any margin limits.

3. Get a HELOC. From my bank I can get a fixed rate 5 year LOC at 4%, and 10 years at 4.25. I also spoke to TIAA-CREF direct, and they offer 3.35% floating for 10 year LOC $75,000 or less.

Any thoughts you have on the merits of these different ideas are appreciated.

Thanks in advance

[dualstow]

Even with these repairs, I contemplate getting a significant amount of cash out of this deal, over and above the cost of the replacement home.

I can think of 3 options to finance the repairs:

1. Borrow the money from myself, from the PP. If the repair costs come out on the high side, this could put me into a rebalancing situation, or face being light on cash until the house is sold.

Without revealing your total wealth, could you tell us more about "light on cash." Would this wipe out your emergency funds, or just lighten?

I opted for a Home Equity loan (10 years) because I am doing a massive and costly renovation of a small house (under 1300 sq ft). I still don't know whether or not it was the right choice, but I'll let you know a year from now when it's over. :-) I guess that'll be too late.

[SteveGo]

No, it would not wipe out my emergency funds.

[Pointedstick]

If you expect the repairs to cost $30k, why not just offer the house for $30k less than you would after the repairs. It will be a wash, and you won't have to figure out where to get the cash.

I guess it depends on whether not doing the work is projected to lower the home's value by more than that, or whether doing the work will raise it by more than that.


Also, Steve, what kind of foundation work are you looking at? That doesn't exactly give me warm fuzzies...

[SteveGo]

The garage end of the house has settled. The house is on sloped ground. The foundation
is a post-stressed slab, and in good shape elsewhere.

My own feeling is that if you go ahead and fix the big things, then you are in a better position to resist downward pressure on the price. When prospects see a few big things wrong with a house, they go fishing for more, and their estimates of repairs will be much higher than yours.

I have a comprehensive home inspection scheduled for tomorrow, and will know more what an independent analysis shows.

[Tyler]

Personally I'd first look at "borrowing" the money from myself.  If you will truly get the money back after the home sale (the big "if"), just consider the short-term loan from the PP to the house repairs as cash and avoid paying interest to anyone else.

That said, you may want to get a few professional opinions on whether all of those repairs are truly necessary to make the sale.  An old (but working) HVAC in an older house isn't a dealbreaker for me as a buyer.  But a new one also won't necessarily draw a premium on the sale price.  And the moment you make a foundation "repair", that could actually scare off more people than it attracts.

If I were to personally prioritize one project, I think a new roof would be the best investment because it's a visible improvement that most people can appreciate and would prefer not to deal with themselves.

[Libertarian666]

If you expect the repairs to cost $30k, why not just offer the house for $30k less than you would after the repairs. It will be a wash, and you won't have to figure out where to get the cash.

+1.