Home upgrade question

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RobLyons
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Home upgrade question

Post by RobLyons » Fri Sep 13, 2019 9:00 am

My gut tells me this isn't possible right now, but my hopes is that it can happen without being too financially irresponsible.

Briefly, we purchased our home in 2012 forever home and have always planned to finish the basement. Below I've listed our specific financial situation. Since 2012 I've taken things slowly to achieve this project via the DIY route, upgrading insulation, sheet rock, electric heat, stove, half bath added, and then going professional with installing a partial French drainage system to avoid future issues/costs because we were getting water in the basement.

Now we are upgrading from oil heat to natural gas and planning to have a 3rd heat zone installed in the basement (current electric heat isn't effective and is much too expensive).


Here's where things get interesting.

My parents are aging, mom in long term care (nursing home) and dad owns own home but mid 70s and finally admitting he cannot continue caring for his own home for much longer. Just general maintenance, lots of stairs, and it's lonely for him to continue living there alone. However, he's not ready to sell his house, nor ready to commit to living with us.


I would like to have the basement professionally finished, up to code, in the event he does decide to move in with us which will cost $40,000.
I don't have $40,000 in cash right now and won't for the foreseeable future.
The good is that we know the contractor and he is willing to work with us on financing (specifics are currently unclear)

So what do I do?
a cash out refi?
HELOC?
Wait and save up cash?
Ask the contractor to finance us/help us out, given low enough APR?
Other...

Worst case scenario, dad decides not to live with us but we still end up with 600-800 more sq feet which should bump the value of our house, and allows us the luxury of a place for family/friends to stay.

Best case scenario dad moves in, probably sells his house, and stays with us happily living his life whatever way he wants to without the stress of home upkeep, has family meals with us, etc. And maybe helps with the upgrade.


I'm willing to sacrifice, but the uncertainties at this point push me towards not doing this upgrade and just focusing on our own financials for now.


Thoughts?



Financial specifics
1 main income, family of 4
Age: 38
12% federal tax bracket (22% if I continue working OT)
5% state
6 month EF
Current retirement funds: $120k (his and her Roth IRAs, 403b, pension)
Annual contributions: $10k 403b, $4k each Roth, pension is 100% employer contributions, about $4-$6k annually) and $2-3k college fund
College: $15k for kids college funds (ages 9, 7)
Home: $260k equity, $220k mortgage remaining
Debt:
--> $5k @ 5.3% (paid down aggressively since last year, was $22k)
--> $18k @ 1.60% (I'm fine with not paying this off early)


Thanks!! :D
"Great parenting sets the foundation for a better world"

student
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Re: Home upgrade question

Post by student » Fri Sep 13, 2019 9:10 am

Seem expensive on something that you may or may not need. Spending $40,000 you don't have to host friends as a backup plan also seems expensive.

veindoc
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Re: Home upgrade question

Post by veindoc » Fri Sep 13, 2019 9:35 am

What else really needs to be done for $40,000? Sounds like the basement is now dry and will soon be heated once you upgrade to natural gas. Half bath is already there. If push comes to shove, you have a place for your dad simply by putting a bed down there. It may not be private but in a pinch could do. Only issue is if you don’t get it done now, and dad comes to live with you, it won’t get done until after he’s gone. Not sure how pressing it is to you. Based on your two options: place for dad vs place for guests, it doesn’t sound like it would impact your family’s lifestyle too much not to get it “properly” finished.

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hand
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Re: Home upgrade question

Post by hand » Fri Sep 13, 2019 10:06 am

I suppose it is location specific, but I'd be *really* skeptical of a contractor in today's world who isn’t already booked months into the future with actual paying customers… Willingness to finance seems like a major red flag.

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Nate79
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Re: Home upgrade question

Post by Nate79 » Fri Sep 13, 2019 10:20 am

Wait and save cash and only do it if there is an actual need. You have quite a high debt load already with consumer debt and the mortgage and I would not borrow and additional $40k on a potential need sometime in the future.

Saving up and paying cash will also make you really think about that spend before doing it.

Topic Author
RobLyons
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Re: Home upgrade question

Post by RobLyons » Fri Sep 13, 2019 10:51 am

veindoc wrote:
Fri Sep 13, 2019 9:35 am
What else really needs to be done for $40,000? Sounds like the basement is now dry and will soon be heated once you upgrade to natural gas. Half bath is already there. If push comes to shove, you have a place for your dad simply by putting a bed down there. It may not be private but in a pinch could do. Only issue is if you don’t get it done now, and dad comes to live with you, it won’t get done until after he’s gone. Not sure how pressing it is to you. Based on your two options: place for dad vs place for guests, it doesn’t sound like it would impact your family’s lifestyle too much not to get it “properly” finished.

We need a full bathroom in the basement. And the toilet setup is DIY/amatuer status. So walls would be torn down, install full bath - shower, toilet professionally installed, and enough room for in the future is any handicap issues came into play..

Then flooring, cabinets, separate washer and dryer, and lower 1/2 the wall to be finished (I failed to mention this)

All in all, I received 3 quotes with $40k being the average quote.


In the end you're right, it wouldn't impact us heavily, but having a $40k hit either way is a lot mentally... Thanks for your valuable feedback!
"Great parenting sets the foundation for a better world"

Topic Author
RobLyons
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Re: Home upgrade question

Post by RobLyons » Fri Sep 13, 2019 10:54 am

hand wrote:
Fri Sep 13, 2019 10:06 am
I suppose it is location specific, but I'd be *really* skeptical of a contractor in today's world who isn’t already booked months into the future with actual paying customers… Willingness to finance seems like a major red flag.

Very true that most contractors up here are booked, but quotes come pretty quickly.. Could be 6-8 weeks minimally but he's only willing to finance because I've known his sister for 20 years. Otherwise, he's stopped financing all others due to failure to pay/default.. Also he's very well off, started small and worked into a very profitable, larger construction company, so I have no concerns over him being "legit" or not.
"Great parenting sets the foundation for a better world"

Topic Author
RobLyons
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Re: Home upgrade question

Post by RobLyons » Fri Sep 13, 2019 10:55 am

Nate79 wrote:
Fri Sep 13, 2019 10:20 am
Wait and save cash and only do it if there is an actual need. You have quite a high debt load already with consumer debt and the mortgage and I would not borrow and additional $40k on a potential need sometime in the future.

Saving up and paying cash will also make you really think about that spend before doing it.


I think I'll follow this approach. And KC is great but I hope my Pats win just 1 more before Brady is gone! :thumbsup :sharebeer
"Great parenting sets the foundation for a better world"

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Sandtrap
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Re: Home upgrade question

Post by Sandtrap » Fri Sep 13, 2019 11:09 am

Things to consider:

1. Do not arrange financing through a builder. (memorize this) *Especially if you are friends or other close relationship.

2. If you need 40k, consider a HELOC.

3. Yes. Dad may not be willing to move, yet, but consider a sudden or progressive health issue that would require him to move in with you over the next year. Then what? How would that unknown possibility change your time frame and plans?

4. Are there stairs to the basement? If dad has mobility issues, ie: broken hip, etc, can he get down the stairs? Is you home ADA compliant/ready?

5. Your DIY half bath arrangement in the basement should be done properly no matter if your dad moves in or not. Consider, if you needed to sell your home and upgrade to another home more suited for your needs. Would you be dong the 40k basement remod. before selling your home then?

6. You should not be spending more on a home that it is worth, or more than it can be sold for at any moments notice. Do you have enough margin in this area?

7. Consider the total cost of moving into another home that fills future needs without a remod. vs the current home. Is it more worthwhile to you to remod the current "dream home" or would it be financially feasible and more practical to move to another "dream home"?

8. If your dad was finally willing to move into your home at some future date, and sell his home, would he be willing to cover the costs of the basement remod and everything else that might be needed for him or he might want in your home?

If so, then wait for that time. There could be interim measures for the transition time in case there was a health occurence. IE: home care, and so forth.

9. Spending 40k right now seems to be an undue burden vs waiting till you have the cash saved. So, not withstanding all of the above, wait until you can pay for it in cash, and also continue to pay down the debt you already have.

j :D
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Quickfoot
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Re: Home upgrade question

Post by Quickfoot » Fri Sep 13, 2019 11:12 am

Forever houses are very rarely forever. If you do the work make sure you keep your receipts and related documentation, work like this increases the cost basis of your house which minimizes capital gains in the case of appreciation > 500K. Seems crazy but our house will appreciate 500K in less than 8 years because of the region we live in (not CA).

megabad
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Re: Home upgrade question

Post by megabad » Fri Sep 13, 2019 11:55 am

In our area, it is considered bad form to list basement square footage on the general front page MLS listing. As such, it doesn't add much to the value of the home. I would only do this reno if you are prepared to permanently lose the cost of the reno. That said, nothing wrong with doing it if you can afford it. In all likelihood, you could refinance at a lower rate and pull the money out no problem. No need for fancy financing. If I had a basement with exterior door access and no steps and relatives that really wanted to live with us, I would gladly finish it off. Unfortunately, I have tons of steps and relatives that don't love spending any more time with me than they have to (vice versa for some of them).

Quickfoot
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Re: Home upgrade question

Post by Quickfoot » Fri Sep 13, 2019 12:21 pm

In our area it's actually not legal, finished basement does not add to the square footage of the house. There is a separate field that tracks unfinished / finished basement square footage but finished basement is treated as a lower class of square footage. Finished basement can increase the value of the property but not at the same rate as traditional square footage (it's about 1/2).

iasw
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Re: Home upgrade question

Post by iasw » Fri Sep 13, 2019 12:30 pm

I wouldn't put Dad in the basement. Maybe he can handle stairs ok today, but what about tomorrow? Is there a room on the main floor he could have, and shuffle that person to the basement?

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RobLyons
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Re: Home upgrade question

Post by RobLyons » Tue Oct 15, 2019 6:46 am

Quickfoot wrote:
Fri Sep 13, 2019 12:21 pm
In our area it's actually not legal, finished basement does not add to the square footage of the house. There is a separate field that tracks unfinished / finished basement square footage but finished basement is treated as a lower class of square footage. Finished basement can increase the value of the property but not at the same rate as traditional square footage (it's about 1/2).

Of course this is a huge YMMV, but I received word back that it does add square footage because the basement is above grade.
(Info from a reputable realtor below)

But with this said, assuming this is correct, does the $40k project now make more financial sense since adding 600 finished sq ft would add actual value to this house? Homes values locally are $250 - $350 per sq ft, but even half of the $250 is $75k added value.. Maybe dumb logic?

Anyhow, this is the info from the realtor..

"Your house really seems to be a split-level that was kind-of turned into a Cape with the top floor & dormer added, or expanded & finished. Given that the basement is essentially "above grade", finishing it off would add square footage but I can't say for sure how the city would treat it. They do have the finished room in the basement noted on the public record, and it appears they are counting it in the total square footage. This is not uncommon in split-levels, and they have your house listed as a Split/Cape. If you're wondering about the resale value of the house with this newly finished area, it definitely would add value, and whether the city counted it or not, if I were selling the home I would include it in the total. "
"Great parenting sets the foundation for a better world"

Topic Author
RobLyons
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Re: Home upgrade question

Post by RobLyons » Tue Oct 15, 2019 6:48 am

iasw wrote:
Fri Sep 13, 2019 12:30 pm
I wouldn't put Dad in the basement. Maybe he can handle stairs ok today, but what about tomorrow? Is there a room on the main floor he could have, and shuffle that person to the basement?

Good point. The basement does walk out to the backyard (large paved patio leading to driveway, but otherwise would be stairs to get to main level or if we added another entrance/exit. He already has some struggles with stairs.
"Great parenting sets the foundation for a better world"

Topic Author
RobLyons
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Re: Home upgrade question

Post by RobLyons » Tue Oct 15, 2019 6:51 am

megabad wrote:
Fri Sep 13, 2019 11:55 am
In our area, it is considered bad form to list basement square footage on the general front page MLS listing. As such, it doesn't add much to the value of the home. I would only do this reno if you are prepared to permanently lose the cost of the reno. That said, nothing wrong with doing it if you can afford it. In all likelihood, you could refinance at a lower rate and pull the money out no problem. No need for fancy financing. If I had a basement with exterior door access and no steps and relatives that really wanted to live with us, I would gladly finish it off. Unfortunately, I have tons of steps and relatives that don't love spending any more time with me than they have to (vice versa for some of them).

Not sure if I mentioned there is one small room in the basement that is finished already but I was told the following from a local reputable realtor

"Given that the basement is essentially "above grade", finishing it off would add square footage but I can't say for sure how the city would treat it. They do have the finished room in the basement noted on the public record, and it appears they are counting it in the total square footage. This is not uncommon in split-levels, and they have your house listed as a Split/Cape. If you're wondering about the resale value of the house with this newly finished area, it definitely would add value, and whether the city counted it or not, if I were selling the home I would include it in the total."
"Great parenting sets the foundation for a better world"

Topic Author
RobLyons
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Re: Home upgrade question

Post by RobLyons » Tue Oct 15, 2019 6:53 am

Quickfoot wrote:
Fri Sep 13, 2019 11:12 am
Forever houses are very rarely forever. If you do the work make sure you keep your receipts and related documentation, work like this increases the cost basis of your house which minimizes capital gains in the case of appreciation > 500K. Seems crazy but our house will appreciate 500K in less than 8 years because of the region we live in (not CA).

Incredible!
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lthenderson
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Re: Home upgrade question

Post by lthenderson » Tue Oct 15, 2019 8:22 am

RobLyons wrote:
Fri Sep 13, 2019 9:00 am
we still end up with 600-800 more sq feet which should bump the value of our house
As someone who built an "in-law" suite in my basement for an elderly in-law currently occupying it, I wouldn't count on it bumping the value of the house significantly for a few reasons. First, while a bathroom adds some value to a basement, bedrooms generally do not. Most people want large family/entertainment rooms in their basements and those will be the ones that add significant value to your home. Also, upstairs laundry rooms add value to homes. A basement laundry doesn't. Next, renovations rarely add 100% of input costs to the value of your home. Since this is your "forever" home, the point is moot since you will never see the cost of the increase if any.

Finally, while I fall into the camp of waiting until your father expresses interest in moving into your basement before you obtain financing to pay for it, there is also another reason to wait. When I built my in-law suite, I built it to how my wife and I envisioned would make my mother-in-law happy. After she moved in, I ended up redoing a fair chunk of it to how my mother-in-law wanted her suite to be. If I had waited until she had committed to moving in and sought her opinion up front, it would have saved me a considerable amount of time and money.

Although not your question, why not tackle this as a DIY project to save money? You mentioned having experience doing bathrooms and sheetrock work, skills you would need to build an in-law suite. You could probably save 60% or more of the cost of the project by doing it yourself.

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RobLyons
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Re: Home upgrade question

Post by RobLyons » Wed Oct 16, 2019 1:36 pm

lthenderson wrote:
Tue Oct 15, 2019 8:22 am
RobLyons wrote:
Fri Sep 13, 2019 9:00 am
we still end up with 600-800 more sq feet which should bump the value of our house
As someone who built an "in-law" suite in my basement for an elderly in-law currently occupying it, I wouldn't count on it bumping the value of the house significantly for a few reasons. First, while a bathroom adds some value to a basement, bedrooms generally do not. Most people want large family/entertainment rooms in their basements and those will be the ones that add significant value to your home. Also, upstairs laundry rooms add value to homes. A basement laundry doesn't. Next, renovations rarely add 100% of input costs to the value of your home. Since this is your "forever" home, the point is moot since you will never see the cost of the increase if any.

Finally, while I fall into the camp of waiting until your father expresses interest in moving into your basement before you obtain financing to pay for it, there is also another reason to wait. When I built my in-law suite, I built it to how my wife and I envisioned would make my mother-in-law happy. After she moved in, I ended up redoing a fair chunk of it to how my mother-in-law wanted her suite to be. If I had waited until she had committed to moving in and sought her opinion up front, it would have saved me a considerable amount of time and money.

Although not your question, why not tackle this as a DIY project to save money? You mentioned having experience doing bathrooms and sheetrock work, skills you would need to build an in-law suite. You could probably save 60% or more of the cost of the project by doing it yourself.

Good points, this has been very helpful.
As for DIY, I've already done many things to the basement DIY - replaced insulation, new sheetrock and ceiling, and a very crude 1/2 bath which would not be appropriate for dad. The reason for the contractor would be to make it "legal" - adding a 2nd exit, putting up appropriate walls, closet, an actual full bathroom (moving a wall to make more room in bathroom) with walk in shower for dad, building everything to code, flooring and kitchen. All I'm not comfortable with doing, even with the help of a friend or two.

The decision has been made, I'll wait and leave the basement as-is for now. Thanks!
"Great parenting sets the foundation for a better world"

Ybsybs
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Re: Home upgrade question

Post by Ybsybs » Wed Oct 16, 2019 1:43 pm

RobLyons wrote:
Wed Oct 16, 2019 1:36 pm
Good points, this has been very helpful.
As for DIY, I've already done many things to the basement DIY - replaced insulation, new sheetrock and ceiling, and a very crude 1/2 bath which would not be appropriate for dad. The reason for the contractor would be to make it "legal" - adding a 2nd exit, putting up appropriate walls, closet, an actual full bathroom (moving a wall to make more room in bathroom) with walk in shower for dad, building everything to code, flooring and kitchen. All I'm not comfortable with doing, even with the help of a friend or two.

The decision has been made, I'll wait and leave the basement as-is for now. Thanks!
Glad you have a good for now option.

To consider later on: If you do choose to have your dad move in and stairs to the basement are too much for him, you might refinish your basement as a living room and make a first floor room into your father's bedroom.

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