Question:: I am about to put $125,000 into remodeling a house. My question is whether or not to drain my cash reserves or mortgage the full amount. I am 41 and have about $50,000 in cash, plus retirement stock funds.
Several things to think about…
1. Cash Flo assumes you have a very good reason for spending such a sizable chunk of money on remodeling.
WORDS OF CAUTION: Location is everything in real estate. If, as a result of remodeling, you wind up with one of the most expensive houses in your neighborhood, you could have trouble getting your money back when you decide to sell. (And since you’re only 41, the likelihood of your eventually selling is fairly high.)
I ask you to think about what you’re undertaking because it’s always better to own one of the least expensive houses in a good neighborhood (especially one with good schools) than one of the most expensive houses in a less sought-after area. You must not expect to sell a $200,000 house in a neighborhood of $135,000 homes.
RULE OF THUMB: Don’t improve a house by more than 30% of its current value — unless you have what’s known as a handyman’s special in a neighborhood of expensive homes and by fixing it up, you’ll be bringing it up to the neighborhood’s standards. Continue reading »