Home Improvement

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What percentage of portfolio value is too much to spend on a semi/very necessary home improvement?

Poll ended at Mon Apr 15, 2013 9:42 am

Less than 3%
0
No votes
Less than 5%
2
33%
5-10%
0
No votes
11-15%
3
50%
16-20%
1
17%
 
Total votes : 6

Home Improvement

Postby Grt2bOutdoors » Thu Feb 14, 2013 9:42 am

What do you think is a ridiculous amount of money as a percentage of portfolio value (excluding home equity) to spend on a home upgrade? The upgrade includes a new addition bathroom (nothing fancy), flooring, roof replacement that is absolutely necessary (end of useful life) and siding. No debt will be incurred in this potential project - basically a percentage of portfolio value will be liquidated to pay for it. Comments?
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Re: Home Improvement

Postby Aptenodytes » Thu Feb 14, 2013 10:05 am

I don't get your question. Why does it matter what the ratio of home upgrade to portfolio size is? What percentage of your shoe size does it make sense to eat in apples?

Later in your post you say you are spending your "portfolio" to upgrade your home. In this forum the word portfolio refers to a retirement portfolio. That raises a different question that doesn't really have anything to do with percentages. If you no longer need the money to support your retirement, if in effect you over-saved, then I see no problem with removing the overage and spending it. But are you sure you saved too much?

Don't you have an emergency fund? That should be used for the roof and other necessary repairs.

A fraction of the addition cost will come back to you when you sell, or when your heirs sell. How much is hard to tell. The remodeling industry will tell you a high number.

Whether this move is right for you depends on your retirement needs and whether your portfolio will be on track to meet them after you make the withdrawal. Forget about percentages.

I try not to mix my retirement portfolio with other savings needs. I'm doing an addition as you are, but I have a separate savings account that is covering those costs. I try to treat the retirement portfolio as untouchable. If you have very good discipline you can dip into the retirement portfolio early, but I'm not sure I trust myself -- to avoid the slippery slope I just don't touch it.
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Re: Home Improvement

Postby Grt2bOutdoors » Thu Feb 14, 2013 10:18 am

Aptenodytes wrote:I don't get your question. Why does it matter what the ratio of home upgrade to portfolio size is? What percentage of your shoe size does it make sense to eat in apples?

Later in your post you say you are spending your "portfolio" to upgrade your home. In this forum the word portfolio refers to a retirement portfolio. That raises a different question that doesn't really have anything to do with percentages. If you no longer need the money to support your retirement, if in effect you over-saved, then I see no problem with removing the overage and spending it. But are you sure you saved too much?

Don't you have an emergency fund? That should be used for the roof and other necessary repairs.



Sure, I have an e-fund. I also had a specific pool set aside for the addition - recent estimates though are starting to bump up against the number I was thinking, hence my question. I was just trying to gauge more or less as percentage of overall assets what is a reasonable amount to spend. Is there an amount which one would consider it to be big time consumerism? I'm not going to touch my retirement assets, I would only touch that if it was a life and death issue, a home addition/necessary repairs included project doesn't qualify. Do I have enough for retirement? Nope and I can't really say that I've oversaved even though I sock away 40-50% of my income each year. I've always considered all my assets (excluding home equity - need to live somewhere) as available for retirement purposes.
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Re: Home Improvement

Postby MGBGTV8 » Thu Feb 14, 2013 10:27 am

Some questions to consider-
1-How many months expenses will be left in your savings immediately after the project?
2- How long will it take you to regenerate the savings you used for the improvements?
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Re: Home Improvement

Postby Grt2bOutdoors » Thu Feb 14, 2013 10:37 am

MGBGTV8 wrote:Some questions to consider-
1-How many months expenses will be left in your savings immediately after the project?
12-18 months in E-fund
2- How long will it take you to regenerate the savings you used for the improvements?
24 months
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Re: Home Improvement

Postby Aptenodytes » Thu Feb 14, 2013 10:41 am

Grt2bOutdoors wrote:
MGBGTV8 wrote:Some questions to consider-
1-How many months expenses will be left in your savings immediately after the project?
12-18 months in E-fund
2- How long will it take you to regenerate the savings you used for the improvements?
24 months

So why not deplete the E-fund instead of the portfolio? Instead of leaving 12-18 months in the E-fund draw it to zero. Based on the answer to the 2nd question, if you took that route you'd be back to square 1 very quickly, so it seems pretty safe.
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Re: Home Improvement

Postby reggiesimpson » Thu Feb 14, 2013 10:49 am

Before spending large amounts of money for anything you may want to ask yourself one question. How long do you plan on staying in the house?
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Re: Home Improvement

Postby Grt2bOutdoors » Thu Feb 14, 2013 11:17 am

reggiesimpson wrote:Before spending large amounts of money for anything you may want to ask yourself one question. How long do you plan on staying in the house?


According to my wife, at least 20 years.
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Re: Home Improvement

Postby Aptenodytes » Thu Feb 14, 2013 11:45 am

For the sake of truth in advertising, I am going through very similar calculations right now. We had a certain sum set aside in a cash account to cover an addition / remodeling project. We hired the architect and got construction bids, and the total came in higher than we had guessed. Rather than scale back the plans we took the leap of faith for the whole hog. To make up the difference we took cash out of our refinance, which had been planned to take advantage of a rate drop anyway. Our total mortgage even with the cash out is about 50% of the house value (before the addition) so I don't feel like we are over-exposed there. With the rate drop our monthly payment is unchanged. I think we are close enough to be able to handle the remaining gap with a little belt-tightening. To be honest, though, we did evaluate whether we'd be willing to slow down our retirement contributions if necessary to make up the difference. We are totally maxing out all tax advantaged contributions in 403B, two Roths, and a SEP IRA, so we could easily get what we need with a 20% reduction in new contributions over the next year. That's the functional equivalent of withdrawing, so I'm sympathetic to what you are contemplating.
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Re: Home Improvement

Postby hsv_climber » Thu Feb 14, 2013 11:54 am

roof replacement that is absolutely necessary (end of useful life)


Wait for the next hail storm and then file insurance claim. Insurance should pay for the roof replacement (minus deductible).
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Re: Home Improvement

Postby reggiesimpson » Thu Feb 14, 2013 12:19 pm

Grt2bOutdoors wrote:
reggiesimpson wrote:Before spending large amounts of money for anything you may want to ask yourself one question. How long do you plan on staying in the house?


According to my wife, at least 20 years.

Then according to at least one metric (your own happiness) spend accordingly. Youre living there so enjoy it.
We moved into our house 20 years ago (children were small), great school district and beautiful neighborhood and the thought of selling was the last thing on our mind. We made a wide variety of improvements to suit our needs over the years. Now the children are moving on and the need/desire to maintain such a large home and property is less important. We are therefore in the mindset of downsizing considerably. Such are the stages of life. Good luck.
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Re: Home Improvement

Postby Default User BR » Thu Feb 14, 2013 12:52 pm

Were it me and I had sufficient equity, I would look into a PenFed 5-year home-equity loan. 1.99% fixed rate (possibly deductible), and worst case expense of $300.


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