"HW \"Skip\" Weldon" <skip5700removethis[at]hotmail.com> wrote:

- quote -

I thought I did, but perhaps it was a little long-winded. Here's my
question rephrased in case it wasn't clear (slightly modified from
what you wrote, but thanks for the precise rewrite): I want to make
some home improvements that I could not otherwise afford without debt
or selling assets I've held for a long time (but don't appreciate
significantly). Assuming I already have done what needs to be done in
my life, that I have ample cash flow so that the debt payment does not
affect any other goals and that I can reasonably expect to recoup the
proposed home improvements at sale, is it generally a good idea to
borrow money for home improvements?

I think Tam's answer was a useful one--the length of time I plan to
keep the house is a factor, and I plan to never sell. So it's
primarily an issue of maintaining the equity which will increase with
the improvements.

--Ram

On 12/12/04 1:02 am, in article cpg52m$jc4$1[at]gnus01.u.washington.edu, "Ram
Samudrala" <ram[at]sp1.compbio.washington.edu> wrote:

- quote -

The general rule is that it is "cheaper to buy than to build" and that only
a limited class of improvements return what they cost upon sale of the
house. From what you say, your house may well be demolished after its sale.
It that is so, any money put into it is "lost" money. Can you "amortize" or
"depreciate" the improvements you posit over your likely tenure in the
house? Think of the improvements as consumption expenditures. How long are
you likely to stay put?

- quote -

You can do your own back-of-envelope calculation as to the savings in income
tax, and only you can know your own proclivity to spend when spending is
made too easy. You might think of a revolving home equity credit which gives
you the possibility of repaying and then re-borrowing.

On Sat, 11 Dec 2004 19:02:15 CST, Ram Samudrala
<ram[at]sp1.compbio.washington.edu> wrote:



- quote -

As you said in another thread, it's critical for someone offering
advice to have your particular situation down cold - all aspects, both
personal and financial.

When someone asks a personal question - "What should I do..." - we
don't know where to start. We don't know if you are single, married,
have a trust fund worth millions <grin> , already retired with ample
cash flow and assets, etc., etc., etc.

So my suggestion would be to rephrase the question something like
this, "I want to make some home improvements that I could not
otherwise afford without debt. Assuming I already have done what
needs to be done in my life, that I have ample cash flow so that the
debt payment does not affect any other goals and that I can reasonably
expect to recoup the proposed home improvements at sale, is it
generally a good idea to borrow money for home improvements?"


-HW "Skip" Weldon
Columbia, SC

I live in a neighbourhood where the land, because of location, is much
more valuable than the house built on it to a point where people are
now buying a house here, tearing it down, and building a new upscale
one to suite. When we bought our house, we got a good deal. Unlike
most of the other houses, even the ones that are upscale, the design
of our house is excellent but it lacks in the most modern upscale
features (it's about 25 years old).

What I'd like to do is use the equity in our house to improve the
house (thus improving our quality of life) which in turn will increase
the value of the house generating even more equity (there is good
reason to believe the appreciation in general will be much more than
the actual cost of the improvement). According to my tax advisor, the
interest paid on investment is tax deductible even if it exceeds the
$100K limit since it contributes to home improvement.

So the question is: is this a good idea? I have many safety nets and
things like saving for the future, etc. are well under control. The
other option is to tap into (sell) other assets we have (which don't
appreciate as much as the home equity loan rate but do form part of
our safety net and there are some psychological benefits) to obtain
what we want.

The other question is: I have a car loan at a rate that is slightly
higher than my mortgage rate (the car itself has a high resale
value). When I tap into the equity, assuming I get a similar or lower
rate, should I pay the car off with the existing equity also? The
pros are an effective lower rate (due to the tax benefits) and lower
payments. The cons is using home equity to pay off the debt for a
depreciating asset (which has some psychological ramifications). I'm
not particularly concerned about the fact that over time, the total
interest paid on this amount may be higher than if I just paid off the
car loan due to the length of home equity loans (future dollars are
much more affordable for me for a variety of reasons).

--Ram