Talk to Me, Greebs

[AmyBoz]

Okay, here's the sitch:

We want out of this house. I really want to move into the neighboring town to get the kids into a better school district.

However, we need to fix the bathroom and the front window before anyone would even consider buying this place.

So, here are our options:

1) Borrow against dh's 401k. He currently has $100,000 in the 401k. To do all the home repairs, we'd borrow about $50,000. To do just the bathroom and window, probably around $20,000 or so. The interest rate on a 401k loan, right now, is 4.5%. In this case, the concern is borrowing against our future.

2) Refinance and borrow against the home. Rates are moving around right now, but will probably average around the 4.5% range as well. The concern here is debt to an outside source. Our mortgage is currently our only debt.

What's your thought?

[Preston]

my first question is.. how urgent is the bathroom?

Would it be more beneficial to just leave it as is fixing only the necessities and just eating it in the selling price?

I think we need more details on this one.

[AmyBoz]

Seriously mold problem. It's a necessity. Ripped out to the studs and starting over. We aren't going high end, but bottom of the line, but still...it's gonna cost about $10,000.

[Rebookie]

Good luck Amy!

[Greebo]

Okay, here's the sitch:

We want out of this house. I really want to move into the neighboring town to get the kids into a better school district.

However, we need to fix the bathroom and the front window before anyone would even consider buying this place.

So, here are our options:

1) Borrow against dh's 401k. He currently has $100,000 in the 401k. To do all the home repairs, we'd borrow about $50,000. To do just the bathroom and window, probably around $20,000 or so. The interest rate on a 401k loan, right now, is 4.5%. In this case, the concern is borrowing against our future.

2) Refinance and borrow against the home. Rates are moving around right now, but will probably average around the 4.5% range as well. The concern here is debt to an outside source. Our mortgage is currently our only debt.

What's your thought?

Between the 2, I'm going for #2.

I don't like #1 for a few reasons:
a) right now is the worst worst worst possible time to pull money out of the 401k. The market is down. WAY down. All that money you put into the 401k got turned into shares. You still have those shares, even if they're worth less right now. If you convert the shares to cash, you forever lose the potential growth.
b) the baby steps clearly say you put your retirement investing BEFORE your debt repayment of the home. That means if you're going to have to back down the ladder, you back down on step 6 before step 5.

Speaking of the baby step order - I mentioned its retirement first, house second. Why is that? Because the home is not an investment. I know, I'm sorry, I'm shocking some of you. I'm shattering the myth that everyone hears, but a home you live in isn't an asset until and unless you sell it and you profit from the sale. Home values can go up and down, and the whole time they do, they take money out of your pocket. THAT is a liability. Yes, the home has asset value in its day to day use, and it has aset potential, but it's not an asset in financial terms - except to the bank.

SO - IN your situation, now we evaluate risk.

Sorry if you told me already, I don't remember....
What is your house worth? (http://www.zillow.com)
What do you owe on it now?
If you borrow $25k for repairs, how much equity will you have left?

Now what do you do to get the house ready to sell? This is a buyers market. My suggestion: you take out as little equity as you can. That means FORGET all the home repairs, focus on JUST the health and safety - the mold, the bathroom, and the dumping of water under your house that we discussed before.

Then since your priority is to get the kids to a better school, you get a good agent, you get it appraised POST renovations, and then you list the price 20k under its newly appraised market value and you list it as-is, no repairs to be made by seller, price reflects the need for work. If you can't list that low, we may have to circle back to this.

Remember - goal is to get OUT of the house, NOT make a killing. If that means you walk away from the house DEBT FREE, then think of it as if you were paying rent all this time. Then you go rent a house, live there a few years, save up and buy another house.

But no no no to the 401k borrowing. Not at all.

[Preston]

My opinion:

Get estimates and find out what this is going to cost.. then take out an equity loan for about twice what the estimates are (to give you a buffer in case costs go over you will have money on hand to us for it -- DO NOT SPEND ANY MONEY THAT IS IN THE LOAN FOR ANYTHING ELSE BUT GETTING THE HOUSE IN WORKING ORDER.

If it goes above cost (which ALWAYS seems to happen) you have money already in place for this. Whatever isn't used when the work is done just put it toward paying off the loan.

DO NOT BORROW FROM 401K

[mauimagic]

Good question and good answers - let us know how it goes Amy.

[frugalfranny]

Good luck Amy......let us know what you decide and how it goes.

[Lora88]

Amy I think you can get the bathroom done for much less than 10,000 My husband is a contractor and believe me many of them are scrambling for work In this ecocnomy people are putting off home renovation. We never hire out any construction on our home cause Dh can jdo it cheaper and better However this year we did as It was cheaper to hire someone than for dh to lose time at work . You say your not going highend you should be able to remodel for about much less Good luck with the sale and househunt

[AmyBoz]

Lora, If it were just the remodel, absolutely. However, we need to gut to the studs, and there is a window in the shower that we need to get rid of (I think it may have been the root of the mold) so we'll need new shingles for outside and new wall for inside, etc. We've had a few estimates, one of them is a good friend who is lowering the labor cost because dh will help.

[joyofsix]

Seriously Amy, I've sold some houses in pretty bad shape. I'd do minimal 'curb appeal' stuff, take the cost of repairs out of the sale price and see what happens first. It might surprise you. If it doesn't move then you can move on to the repairs. It's a conservative start.

[Greebo]

Seriously Amy, I've sold some houses in pretty bad shape. I'd do minimal 'curb appeal' stuff, take the cost of repairs out of the sale price and see what happens first. It might surprise you. If it doesn't move then you can move on to the repairs. It's a conservative start.

The markets are starting to pick up in some areas - this might very well be a successful strategy. And there's no real RUSH for you to move, is there? I'm sure you're eager to do so, but if you examine the eagerness, I wager you'll find that the sense of urgency is emotional, not factual.

You can always list the property "as-is, needs TLC, sale price reflects cost of needed repairs" W/O doing the work and see if an investor will snap it up. If they don't, de-list it, do the work, wait for a better market, and try again.

[NikoSan999]

Can you knowingly sell a house with mold issues legally? Just curious. That's scary. That is a serious health issue. Do you have to disclose that it is there to the potential buyer first?

[Greebo]

Can you knowingly sell a house with mold issues legally? Just curious. That's scary. That is a serious health issue. Do you have to disclose that it is there to the potential buyer first?

Rules may vary by state, but in Maryland:
1) Yes.
2) No.

Property may be sold in any condition - it need not be habitable. Investors love run down unlivable properties because they (we one day) can buy it for cheap, fix it up cheaply, and sell it at market value.

In Maryland, a seller can simply sell the property "as is" with no disclosures, leaving it to the buyer's inspector to identify any issues.

The buyer is expected to be aware of the risks, thus the recommendation of using a Buyers Agent. Caveat Emptor.

[Maine Girl]

Amy,

Let us know what you decide. I also thought if possible sell as is or are you interested in renting your house for now?